Market Drivers for March 6, 2014

AU Retail Sales much stronger 1.2% vs. 0.5%

Nikkei lift helps yen crosses

Nikkei 1.57% Europe .49%

Oil $101/bbl

Gold $1335/oz.

Europe and Asia:

AUD Retail Sales 1.2% vs. 0.5%

AUD Trade Balance 1.43B vs. 0.11B

EUR French Unemployment 10.2% vs. 11.0%

North America:



EUR ECB Presser 8:30 AN

USD Weekly Jobless 8:30 AM

CAD Ivey PMI 10:00 AM

The antipodeans were the clear stars of the show in the currency market tonight with kiwi rising to a new 2014 high of 8471 while Aussie cleared the key 9000 barrier hitting fresh two week highs. The rise in the Aussie was driven by surprisingly strong economic data as both Retail Sales and Trade Balance numbers printed much better than expected.

Australian Retail Sales rose 1.2% versus 0.5% eyed – the best reading in nearly a year as consumer demand has clearly picked up. This was the seventh consecutive month of positive growth in the retail sales sector and the fastest acceleration this year suggesting that the RBA policy of lower rates is having a material impact on consumer demand.

The Australian Trade Balance also showed a big improvement printing at 1.43B versus 0.11B eyed. This was the biggest surplus since 2011 showing that the decline in mining revenues is being offset by other economic factors.

Overall the data from Down Under was markedly better than consensus forecasts indicating that growth in H1 of this year is likely to accelerate. Tonight’s news put to rest any concerns that the RBA may have to backtrack on its move to a neutral monetary policy and indeed raised the possibility that the central bank may once again consider tightening at the end of 2014 if the growth in Australia continues at the current pace.

The Aussie rose to 9030 in the aftermath of the news and has continued to creep higher as European traders came on line. The pair faces stiff resistance at the 9080 level, but if the risk flows in North America continue to be supportive the unit could test that level as the day proceeds.

Elsewhere USD/JPY got a boost from stronger Nikkei and reports that BOJ is considering buying foreign sovereign bonds for its QE program. The pair rose to a high of 102.80 and looks ready to tackle the 103.00 level especially if the NFP data tomorrow can come in anywhere close to the 150K level showing that the US economy continues to expand despite the awful weather this winter.

For today however, the focus will remain on Europe as the market prepares for the ECB meeting at 13:30 GMT. The consensus view is that the ECB is likely to remain stationary for the time being as the most recent data has shown some signs of pick up. Even in France which has been a massive drag on EZ growth, today’s unemployment data showed a surprising improvement in labor demand with unemployment declining by -41K and the rate falling to 10.2% from 11.0% forecast.

The ECB therefore may choose to remain on hold and issue no hints about about any possible rate cuts next month. If the policy remains essentially the same, the EUR/USD could rally in response making another run at the 1.3800 level – especially if Mr. Draghi suggests that EZ growth will recover organically without any additional extraordinary measures by the ECB. On the other hand if the central bank turns more dovish, the EUR/USD could see a knee jerk sell off towards the 1.3600 level.

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