ASX to return to trade on a positive note

Risk assets have had a buoyant couple of sessions, still riding the positive momentum from the ECB meeting and the US non-farm payrolls data. 

Market data

While data was limited in overnight trade, Fed member James Bullard was on the wires with some bullish commentary. He suggested if US economic data continues to track the way it’s going, then we can expect to see an earlier rate hike.  The US dollar hasn’t quite managed to extend its gains though, despite the positive run in data. Most of the major currency pairs were actually sidelined in overnight trade, suggesting markets are already looking for a fresh catalyst.

EUR/USD strength post the ECB meeting didn’t last long at all and the pair is now trading a touch below 1.36. The pair is currently holding a tight range with some limited moves there on the back of bank holidays for France and Germany.

China data could be a dampener

Australia also had a bank holiday yesterday and the market returns to trade today after missing out on a couple of bid economic readings. The first of these two is the US non-farm payrolls print from Friday and the second is China’s trade balance, which was released on Sunday. China’s trade balance showed a much bigger-than-expected surplus, primarily driven by a significant drop in imports. Imports for May were expected to be up 6%, but instead showed a 1.6% drop.

Some of Australia’s key commodities exports to China dropped off significantly and this will be a concern. Regardless, AUD/USD has held up relatively well and in fact continues to hold its ground above 0.93. The pair will be facing another test today, with CPI and PPI data due out. The data is due out at 11.30 AEST and CPI is expected to show 2.4% growth.

Locally we have NAB business confidence, ANZ job ads and home loans data due out. As a result, AUD/USD could be in for a busy session today and will face some real tests if local data continues to show signs of strain. Ahead of the local market open, we are calling the ASX 200 up 0.5% at 5489. I expect to see some of the themes from last week continue, particularly in the resource space. China’s imports drop off won’t help the situation, particularly for the iron ore miners.  

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