Another Aussie Trade Deficit
Australia chalked up a second consecutive trade deficit in February triggering a 30 pip drop in AUDUSD. Losses could have been greater had a technical support line not made its presence felt. The consensus had been looking for a rebound back into surplus territory, as the effects of the Lunar New Year holiday were expected to have worn off by now. However, iron ore exports only partially recovered from January’s steep drop, and the value of coal exports fell another – 16% m/m. Naturally questions are now being asked if this latest data point is yet another symptom of a China slowdown. We reserve judgment for now, and note that inclement weather may have disrupted iron ore shipments in particular. The dollar continued its broad-based advance overnight in the wake of the FOMC minutes which suggested the Fed is some distance away from pushing the QE3 button. This stands in contrast to the impression markets received after Chairman Bernanke’s March 26th speech. Overall, our economists note that the minutes have laid a marker for eventual altering of the ‘late 2014’ guidance for the FOMC, though material movements are needed both on growth and inflation to ultimately achieve revision in their current policy communication. The Fed’s staff forecasts also pointed to better GDP figures and higher inflation, and trend growth was downgraded. A stronger-than-expected payrolls print would set the stage for a robust Q2 for both the dollar and risk appetite. Within a G10 context, the Fed still appears well ahead of the curve, though the ECB, which meets on Wednesday (a day earlier than usual), is more likely to act on an inflationary impulse, and we see the possibility of an ECB rate hike in 2013 if the sovereign debt situation continues to improve. Germany and the UK will release services PMI figures for March, while the ADP report and non-manufacturing ISM are due in the US.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank