– Scope for further commodity bloc gains
FX markets continue to trade along our expectations for a mixed tone in the USD, with clear divergences across the G10. AUD, NZD and CAD remain the relative outperformers and we expect that trend to persist. Our strongest conviction remains short USDCAD, which broke 1.0150, a support level that had been containing the downside in recent sessions. Our technical analyst points to 1.0079 as the next significant support level (50% retracement of the February high). A break of that level would open the path to a test of the psychologically important ‘parity’ level. US data/Fed comments mix has supported that view. We expect firm prints in the March ADP private sector employment (+210k) and services ISM (56.5) today. But comments from the Fed speakers have suggested commitment to QE3 will stay and we expect a similar message from the Chicago Fed President Evans later today. We are also very constructive on AUD on the back of the positive pressure on CNY given the tight positive correlation between the two currencies. The better than expected Aussie trade balance at –AUD178mn in February versus expectations for –AUD 1bn and compared to –AUD 1.22 bn in the prior month should help lend further support to the AUD. We continue to target AUDUSD at 1.10 by year-end.
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BNP Paribas