Australia Trade Balance Is Positive - 3.3.2011

FX markets remained tightly range-bound for most of the Asia session, as investors direct their attention to the upcoming ECB press conference. Headlines suggesting that a peace plan for Libya is being discussed led to a spurt of risk-seeking, but it was shallow and brief. EURUSD traded 1.3847-1.3876, USDJPY 81.65-81.93. The S&P 500 finished fractionally stronger. The Fed's latest Beige Book was a bit more optimistic and the ADP employment data beat consensus, rising +217k in Feb. Fed Chairman Bernanke's second day of prepared testimony was largely unchanged from the first. During the Q&A session, he said he would not rule out the possibility of a QE3 if conditions deteriorate, though he implied this was not his expectation. He added that monetary policy works with a lag and therefore "we cannot wait until we get to full employment and the target inflation rate before we start to tighten." ADP estimates private payrolls rose +217k in Feb.

EUR

The ECB decision is due and the consensus is expecting no change to the policy rate. But during the ensuing press conference, look for a more hawkish stance, an upward revision of inflation forecasts, and no change in the 3-month repo rules for forthcoming ECB tenders. German Chancellor Merkel and Portuguese Prime Minister Socrates met and Socrates reiterated that Portugal does not need external help. Socrates said the March 11 summit aims to boost confidence for market participants and Merkel remained non-committal on possible reductions or alterations to current bailout packages for Ireland and Greece. Eurozone PPI was stronger at 1.50% m/m compared to consensus of 1.10%. This will add to the ECB's inflation concerns and provides further evidence of higher oil prices feeding through.

AUD

Trade data for January showed a -29.5% m/m decline in coal exports, due to flooding in Queensland, while exports in general fell -4.1% m/m. The AUD was not badly affected by the news, largely because of a compensating decline in imports, which caused the trade balance to come in ahead of expectations at A$1.875 bn (cons. A$1.55 bn). Building approvals fell dramatically by -15.9% m/m (cons. -3.3%), and -24.8% (cons. -6.6%). The declines were even more pronounced in Queensland. Economists expect that the RBA will likely hike by a further +50bp in H2.