Australia’s trade balance is expected to print in deficit territory again

Price action overnight would suggest the market initially overreacted to the news out of France and Greece, but risk assets are not out of the woods yet. Whilst we did see a broad recovery across the FX and equity markets, there are still lingering risks surrounding the possibility of a Greek default and even Greece exiting the Eurozone. Yet, these are considered only remote possibilities at the moment, and there are also some supportive factors helping to bolster the euro, namely Fitch’s reaffirmation of France’s AAA rating, the lingering possibility of more easing from the Fed and the recognition that anti-austerity isn’t necessarily anti-euro.

A better gauge of overall investor sentiment than euro weakness is yen strength. Although JPY retraced some its gains from yesterday’s session, it didn’t retrace the same amount against the dollar as the euro did (with euro retracing losses and yen retracing gains), likely because of the reasons described above either don’t apply to JPY or they are USDJPY negative (like the possibility of more Fed easing). Thus, we can see how JPY would be a better gauge of investor sentiment.

Nonetheless, the focus today will likely be on the aussie, with trade balance data due out of Australia at 11:30AEST and Swan’s budget release tonight. The budget will be key in determining whether the RBA will move to cut rates again. Nonetheless, there may be some volatility on the back of the trade balance figures, but only if the headline figure does not print in line with consensus. The market is expecting another deficit figure for March, but this time the deficit is expected to be bigger due largely to a deterioration in net exports which is the result of a significant pick-up in capital goods imports. However, there may be a silver lining with the capex figure expected to bounce-back following the financial uncertainty of 4Q 2011, thereby releasing a restriction to GDP growth. Overall, the trade balance is expected to have shrunk by around -1.3bn, but we wouldn’t be surprised if the deficit widened even further, hence we are looking for some AUD weakness following the release, albeit only a small reaction.

Source: Forex.com

07.05.2012