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Some disappointing March housing data released this morning set the tone for some AUD weakness. March home loans fell 0.9% which was much worse than an expected 1% rise. Meanwhile the quarterly house price index reading showed a 1.2% fall.
This data was just a curtain raiser to China’s industrial production, fixed asset investment and retail sales data due out at 3.30pm (AEST). These readings are expected to show signs of continued subdued growth, with most of them relatively unchanged from the previous readings. Analysts remain split on whether China will spring to action to curb slower growth or if they are indeed now more comfortable with a slower pace of growth. The winner of this tug-of-war is likely to determine which way risk sentiment will swing.
Australia’s budget at 7.30pm will also be key to how the AUD trades. Some traders would say an austere budget is largely in the price; however it will be interesting to see if this results in downside for the AUD. Gains in the AUD are likely to be capped until then.
Yen weakness resumes as deficit widens
USD/JPY is on the move in Asia after finally managing to break back above 102. The pair came under considerable threat in past weeks testing the 101.50 level which proved to be a significant level of support, defended ferociously by the bulls.
Yesterday’s current account deficit set the pair up for a rally. Japan’s March current account deficit was the highest since 1985 and this was mainly blamed on stocking ahead of the consumption tax hike. It is clear there is plenty of uncertainty ahead for the Japanese economy and this has prompted traders to feel further action might be needed down the road to get the Japanese economy back on track. While there is no concrete evidence to support this at the moment, data releases post the April consumption tax hike will be crucial going forward.
There isn’t much on the Japanese economic calendar today and therefore focus will switch to the USD side of the equation. We have US retail sales, import prices and business inventories to look out for. Any further signs of strength in US data could see the pair extend gains.