ClearFX Daily Commentary - 11/05/2011

Australian Dollar: Australia’s trade balance returned to surplus in March, it was announced yesterday, as gasoline imports were outpaced by exports of iron ore and coal. Now in surplus by A$1.74 billion in contrast to February’s revised deficit of A$87 million, the Trade surplus exceeded analysts’ expectations and provided the Australian Dollar with some intraday support and a gain of almost 30 points immediately upon release. The Aussie failed to hold onto these gains during Asian hours and by the switch to London hours it was sitting back at 1.0740. The announcement of the Annual Federal Budget yesterday evening did little to affect the local dollar and it was only the overnight rally in stocks and commodities which provided the stimulus needed to move higher and this morning we see the Australian Dollar sitting comfortably higher above the 1.0800 level. Currently at 1.0840, it is a quiet day on the docket for domestic data and markets will instead be keeping an eye on some key figures from China today, in particular but not exclusively, Consumer Price Index and Producer Price Index.

We expect a range today of 1.0780 – 1.0880

New Zealand Dollar: The New Zealand Dollar fell sharply at the beginning of its onshore session yesterday after the International Monetary Fund (IMF) published a statement expressing its opinion the NZD is overvalued by 20%. The current strength of the Kiwi is attributed to its high-yielding status of 2.5%, second only to Australia’s 4.75%; however the IMF is concerned that in absence of strong economic fundamentals, the Kiwi my suffer a correction as other major central banks start to raise their own rates. Coinciding with the release of the treasury’s budget report which showed a greater than anticipated cash deficit, the Kiwi dropped almost 40 pips immediately although some ground was reclaimed as expectations that higher Chinese imports will increase demand for New Zealand’s raw materials and goods. In combination with risk-on trade overnight the New Zealand opens this morning at 0.7940 against the Greenback after reaching highs near 0.7960, but lower at 0.7325 against the Australian Dollar.

We expect a range today of 0.7920 – 0.7990

Great British Pound: An increase in risk appetite spurred by a rally in stocks and commodities in New York has helped the British Pound recoup some of its recent losses. After falling from yesterday’s opening levels near 1.6400, the Pound fell to test support at 1.6320 before demand for riskier assets helped cable reverse its momentum and we open this morning at 1.6370. Tonight’s docket holds the Bank of England’s Inflation Report and Governor Mervyn King’s accompanying press conference. With interest rates still at all time lows, investors will be looking out for any hints as to the central bank’s monetary policy stance and indications of any potential tightening. In a risk on environment it is no surprise Sterling opens lower against the Aussie and the Kiwi this morning, at 1.5100 and 2.0610 respectively.

We expect a range today of 1.0520 – 1.5130

Majors: Stocks and commodities have continued to pare last weeks losses over the past 24 hours and this has reduced demand for safer assets. The Japanese Yen lost ground against the Euro for the first time in six days and the US Dollar also lost ground against most of its riskier counterparts. The Euro was provided a boost as countries such as France and Germany vowed to stand behind Greece and a spokesperson for the German Chancellor Angela Merkel stated that the restructuring of Greece’s debt is not being considered. Rallying higher throughout the European and North American sessions the Euro finished the day at highs back above 1.4400 against the Greenback and remained near highs of 116.50 against the Yen.

Data releases

AUD: No data due for release

NZD: RBNZ Financial Stability Report

JPY: Leading Indicators

GBP: BOE Inflation Report; Trade Balance

EUR: German Final CPI m/m; German WPI m/m

USD: Trade Balance; Federal Budget Balance; Crude Oil Inventories