Aussie Starts to Fold

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Market Drivers March 2, 2017
AU Trade data misses
UK PMI Construction in line
Nikkei 1.46% Dax 0.88%
Oil $54/bbl
Gold $1245/oz.

Europe and Asia:
AUD AU Trade 1.3B vs. 3.8B
GBP UK PMI Construction 52.5 vs. 52.2
EUR EU Core CPI 1.x vs. 1.8%

North America:
USD Weekly Jobless 8:30
CAD GDP 8:30

It’s been a quiet night of trade in the currency market with most of the majors contained to narrow ranges, but the commodity dollars were notably weaker with Aussie taking the brunt of the losses as the unit drifted towards the .7600 figure.

In Asian session trade, AU Trade data disappointed the market coming at 1.3B surplus versus 3.8B eyed. The smaller than expected surplus was driven by weaker exports which fell by 3% with coal and iron ore down significantly. Market took that as a troubling sign as concerns that demand for hard commodities from China may slow down as the year proceeds.

Aussie remained relatively steady in post news trade but started to slide as European traders came on line. Part of the reason for the decline was simply profit taking as the pair has gained more than 500 points since the start of the year on carry-trade flows. However, this week US yields have started to perk up in the wake of considerably more hawkish rhetoric from the Fed, so the decline in Aussie is really more a function of compression in yields rather than any structural concerns about growth.

Elsewhere price action was generally subdued, but dollar strength persisted with USDJPY rising above the 114.00 mark and remaining there for most of the night. Both euro and cable remained weaker with the later hitting 5-week lows as it approached the 1.2250 level.

In North American trade today the calendar is light with only US jobless claims on the docket so FX markets will likely look to fixed income for guidance. If the benchmark 10 year starts to inch towards the 2.5% mark, USDJPY could make a run at key resistance at the 115.00 level as the day proceeds.

Boris Schlossberg
Managing Director

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