China PMI Injures AUD
AUDUSD dropped 100 pips after China’s flash PMI estimate for March came in well below February’s final print (48.1 versus previous 49.6). The PMI also added to the kiwi’s troubles, compounding the selloff that began earlier after a very weak New Zealand GDP report. There was positive news too overnight – Japan’s trade balance unexpectedly climbed back into surplus territory in February (on a non-seasonally adjusted basis). Surprisingly, stronger exports were the root cause – and even more surprisingly exports to the US in particular grew sharply. This is yet another piece of evidence that the US economic recovery is gaining momentum. On one hand, a return to a trade surplus is likely to provide some temporary support to the yen, but rising US yields on the back of an accelerating US recovery will likely keep USDJPY aloft. USDJPY should also be supported by a gradually fading ‘home currency bias’ among yield-hungry Japanese investors entering fiscal 2012 – as highlighted in comments (reported yesterday) by an official at one of the major life insurers, who deemed the BoJ’s easing move on Feb 14 to be a “historical turning point” that will boost USDJPY. Advance Eurozone PMI figures for March are due – our European economics team expects the manufacturing survey to come in well below the consensus. Considering Spanish yields are also much higher once again, we think the euro is looking decidedly vulnerable at these levels.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank