Aussie And Kiwi Surge On Risk Appetite, China Data

Strong risk appetite pushed DOW to another record close at 14673 overnight, while Asian markets are supported by China's trade data in initial trading. China unexpectedly reported USD -0.9b trade deficit in March, due mainly to the unexpected strong rise in imports by 14.1% yoy to USD 183.1b. Exports grew 10% yoy to USD 182.2b. As a result of strong trade ties with Australia and New Zealand, both the AUD/USD and NZD/USD pairs jumped sharply. The AUD/USD has taken out near term resistance at 1.0496, while NZD/USD broke near term resistance at 0.8533. Markets are relatively steady elsewhere, with USD/JPY and EUR/JPY pairs still feeling resistance from 100 and 130 psychological levels. The EUR/USD stays firm above 1.3 psychological level.

RBA assistant governor Kent said that "the peak in resources investment is now close". And once the peak has passed, "the decline in mining investment -- and the effect of the still high level of the exchange rate and ongoing fiscal consolidation -- will weigh on economic growth." Kent noted that there has already been a "significant easing" in monetary policy, and the effects were clearly evident in established housing markets. He added that the RBA has "reduced interest rates more than we would have otherwise if the exchange rate hadn't been so high." After all, the comments were largely ignored by markets.

NZD/USD was lifted by a couple of factors this week. Those include RBNZ comments, risk appetite and the rally in NZD/JPY on yield hunt. The breach of 0.8533 resistance in NZD/USD argues the rise from 0.7457 is resuming. Such a rally is viewed as part of the pattern from 0.7370, which is seen as a corrective move, that is, the second leg of the consolidation pattern from 0.8842. Hence, while further medium term rally could be seen, we'd expect strong resistance below 0.8842 to limit upside and bring reversal.


Looking ahead, the economic calendar is relative light today. FOMC minutes will be the main focus. The minutes might show that policy makers turned more upbeat on the economy while remained unconcerned with inflation. The minutes might also show more discussions about tapering the monthly asset purchases. However, note that economic data in March, after the Fed meeting, has been disappointing so far and thus, any positive impact from the minutes on dollar would likely be short lived.