Asia Focus: USD Profit-Taking Continues, But Aud Downside Likely

Australia’s trade deficit increased more than expected in October to AUD 529 million, which points to softer economic performance as commodity exports declined. Western Australia continues to drive a large share of exports to China to record highs. The October trade balance and disappointing third-quarter GDP suggests that Australia will face a difficult path as the economy struggles to re-balance. However, underlying data continues to highlight early signs of productivity growth away from mining, as housing and industrials take the lead.

Limited upside for Aussie
The macro reality continues to push AUD lower, but it will still need to settle below 0.9000 in order to please the Reserve Bank of Australia (RBA). AUDUSD had a few upside moments this past week, but most of it was from USD month-end profit-taking ahead of the important US non-farm payrolls report on Friday. Traders are waiting for continued downside momentum, but AUDUSD will need to move below its 30-day simple moving average, seen on the hourly chart below.

USD overshadows JPY
USDJPY is taking an extended breather as traders take profit, but lower support levels around 101.80 and 102 could help. Recent developments from Japan are also supportive for USDJPY, but the slow moving upper house is causing some drag. Reports that Japan is preparing a USD 53 billion stimulus package this week caused little market reaction, and was priced in since September. Japan has been silent lately, so the market should look towards December 12 when the Cabinet is scheduled to report details of a supplementary budget, if approved.

There seems to be a greater correlation between the Nikkei and USDJPY, which could reflect JPY weakness. 15,000 is an important level for Nikkei, so traders might feel more comfortable if we remain above that mark.

What’s ahead

On Thursday, the European Central Bank’s (ECB) rate decision will be the key event, and while the market does not expect a change in policy, ECB president Mario Draghi’s press conference could trigger some interesting price action on the crosses.

In the US, the final estimate for Q3 GDP will be scrutinised, with a close look at personal consumption and initial jobless claims data.