Strong commodity prices were a key feature of trading during the previous session but market participants took this opportunity to book some profits in the Australian dollar. There was some volatile trading in the aussie, which made a 7-month high against the US dollar at 0.7483 during the US session. The aussie had been significantly helped by a big rally in iron ore and overall positive tone in commodities. Oil rose to its highest since early January as US crude managed to trade above $38 before dropping back around $37.40. The aussie dropped back to around 0.7420 in Asia after profit-taking as Reserve Bank of Australia Deputy Governor Lowe also said he would like to see a lower aussie.
During the previous session, the Fed’s Vice President said he saw some signs of inflation in recently-released data. This did not help the greenback as the euro climbed above the 1.10 level to 1.1035. There was strong data out of Germany in late Asian trading, as industrial output in the country climbed much faster-than-expected at a 3.3% pace in January compared to expectations of a 0.5% increase.
Chinese trade data was the session’s most important economic indicator and they came in far below expectations. Specifically it was the worst drop in Chinese exports in 6 years. Exports in February fell by 25.4% while imports dropped by 13.8%. This meant that China’s trade surplus fell to 32.59 billion dollars; much worse than the 50 billion dollars expected. Seasonal factors such as the Chinese New Year holidays might have distorted the data but trade figures were weak during the previous month as well. The negative data contributed to a ‘risk-off’ atmosphere for Asian stocks.
In other economic news, Japanese GDP for the fourth quarter contracted less than preliminary estimates. Japan’s economy contracted by an annualized 1.1% instead of a 1.4% contraction initially reported. Private consumption was weak but capital expenditure was revised a little higher. The Japanese yen was stronger today but this had more to do with some risk aversion. Dollar / yen dropped below 113 to 112.85 as a result.
The remainder of the day is likely to be quiet as the main data releases include only a revision to 4th quarter Eurozone GDP growth and a survey of small business optimism in the United States. Central bank speakers during the day will include the Governor of the Bank of England, Mark Carney, who will speak before a parliamentary committee on Brexit.
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