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Price action was rather muted during today’s Asia session, although the Aussie was an exception yet again since it was broadly sliding lower. This time, however, the Kiwi decided to join the Aussie in its misery.

  • ANZ’s New Zealand commodities index m/m: -0.2% vs. 0.4% previous
  • HIA’s Austalian new home sales m/m: -1.1% vs. 0.2% previous
  • Australian trade balance: $3.11B vs. $3.33B expected, $3.66B previous
  • Caixin Chinese services PMI: 51.5 vs. 52.6 expected, 52.2 previous
  • Japan still on holiday today

Major Events/Reports:

Australia’s trade balance narrows, but…

According to the Australian Bureau of Statistics, Australia’s trade surplus in March narrowed to $3.11 billion from an upwardly revised $3.66 billion ($3.57 billion originally), which is smaller than the $3.33 consensus.

However, a closer at the details shows that the narrower deficit wasn’t necessarily very bad since exports actually rose by 2.38% to a record high of $33.34 billion. It just so happens that the 4.58% surge in imports managed to overwhelm exports. Speaking of imports the increase in imports was thanks mainly to the 9.74% surge in imported consumer goods. And that, in turn, may be a signal that retail sales recovered in March after contracting in April.

Iron ore futures drop super hard

After sliding a bit yesterday, Dalian iron ore dropped by a whopping 8% to 485.00 yuan per dry metric ton during today’s Asian session. This is the hardest daily drop since November 16.

Market analysts blamed the drop on yet another slump in Chinese steel rebar prices and worries over weaker Chinese demand.

RBA’s Lowe Speaks

RBA Governor Philip Lowe gave a speech titled “Household Debt, Housing Prices and Resilience” earlier today. And, well, we’ve pretty much heard about it before.

According to Lowe, the RBA is (still) worried that about the high levels of housing debt and their potential effect on consumer spending:

“Given the high levels of debt and housing prices, relative to incomes, it is likely that some households respond to a future shock to income or housing prices by deciding that they have borrowed too much. This could prompt a sharp contraction in their spending, as they try to get their balance sheets back into better shape.”

As such, Lowe warned yet again that:

“An otherwise manageable downturn could be turned into something more serious.”

“In terms of resilience, my overall assessment is that the recent increase in household debt relative to our incomes has made the economy less resilient to future shocks.”

Lowe did provide some forward guidance when he said that “at some point, interest rates in Australia will increase.”

However, Lowe was quick to add that:

“To be clear, this is not a signal about the near-term outlook for interest rates in Australia but rather a reminder that over time we could expect interest rates to rise, not least because of global developments.”

Still, it’s now clear that the RBA is more likely to hike than to cut further. And besides, cutting further would only worsen Australia’s housing market woes.

Major Market Mover(s):

AUD

The Aussie started the session by sliding across the board right away, likely because of the slide in oil prices. The Aussie found some respite when Australia’s trade report, which was not as bad as it looks, was released, but bearish pressure was persistent.

It then looked like Lowe’s comment about having a hiking bias would finally save the Aussie, since the Aussie jumped higher across the board. Unfortunately for Aussie bulls, there were far more Aussie bears, and so the would-be rally got faded and the Aussie turned lower once more.

AUD/USD was down by 22 pips (-0.30%) to 0.7406, AUD/JPY was down by 23 pips (-0.27%) to 83.55, AUD/CHF was down by 19 pips (-0.26%) to 0.7365

NZD

The Kiwi grudgingly weakened during the course of the session, likely because of the risk-off vibes that prevailed in Asia. Later, the Kiwi got a sharp kick lower near the end. However, there were no apparent catalysts for the Kiwi’s sudden weakness.

NZD/USD was down by 16 pips (-0.25%) to 0.6867, NZD/JPY was down by 18 pips (-0.23%) to 77.48, NZD/CAD was down by 22 pips (-0.24%) to 0.9426

Watch Out For:

  • 7:00 am GMT: Spanish unemployment change (-78.2K expectd, -48.6K previous)
  • 7:15 am GMT: Spanish services PMI (57.5 expected, 57.4 previous)
  • 7:45 am GMT: Italian services PMI (53.7 expected, 52.9 previous)
  • 7:50 am GMT: French final services PMI (unchanged at 57.7 expected)
  • 7:55 am GMT: German final services PMI (unchanged at 54.7 expected)
  • 8:00 am GMT: Euro Zone final services PMI (56.3 expected, 56.2 previous)
  • 8:30 am GMT: U.K. services PMI (54.6 expected, 55.0 previous)
  • 8:30 am GMT: U.K. net lending to individuals (4.5B expected, 4.9B previous) and mortgage approvals (67K expected, 68K previous)
  • 9:00 am GMT: Euro Zone retail sales (0.1% expected, 0.7% previous)