Asian markets have mostly extended their losses today, despite US markets continuing to edge higher. US economic data continued to show strong signs of improvement as retail sales increased in February by the most in five months. Retail sales advanced 1%, well ahead of expectations of a 0.5% rise. This was enough to push the US dollar higher against most of the major currency pairs. The US dollar strength has lost some steam in Asia, particularly against the AUD which has rocketed on the back of some impressive jobs numbers. AUD/USD spiked through 103 and charged to a high of $1.0382 on the data.
The unemployment rate remained steady at 5.4%, better than a consensus of 5.5%, with 71,500 jobs added (versus consensus 10,000). This ended up being a double whammy for the ASX 200 which is down 1%. Firstly, the market had to contend with a stronger US dollar weighing on commodities, and in turn the resource space. Secondly, such strong unemployment data reduces the chances of seeing the RBA pull the trigger on rates anytime soon. This in turn weighs on some interest-rate-sensitive and exchange-rate-sensitive stocks. Despite the extremely robust jobs report, many analysts remain confident that this will not last and we’ll see the local labour market data deteriorate over the year. The materials space is leading the market lower as commodity prices drop and iron ore plunges to below $140 a tonne. BHP and Rio where hammered in London and have followed suit here, dropping 2.1% and 1.9% respectively, while gold stocks retreated from yesterday’s gains as the precious metal snapped its winning streak overnight.
Apart from the AUD, the other interesting move in the region today came from the NZD. NZD/USD has suffered a double whammy from strong US retail sales data and New Zealand’s policy decision. The pair declined from $0.8271 all the way down to $0.8167 after the RBNZ left rates unchanged. NZD dropped sharply post the RBNZ decision, with Governor Wheeler also on the wires saying a stronger currency may give scope for rate cut. New Zealand’s central bank said rates will not be raised this year, sounding an extremely dovish tone. With rates remaining at a record low and speculation that the nation’s worsening drought will weigh on the economy, the pair is likely to remain under pressure.
Japan got off to a pretty good start today as investors focused on the US dollar strengthening against the yen, following the US retail sales numbers. USD/JPY was steady at around ¥96.20 early in Asia, but has since lost some steam and is back below ¥96. Consequently the Nikkei has also given up some of its early gains, but is still up 0.5% at the moment. The Nikkei was up as much as 0.8% earlier, but it seems there is a degree of caution being exercised with Japan’s lower and upper house set to vote on BoJ nominees over the next couple of days. We remain of the opinion that traders will see any dips as a good opportunity to get involved in the Japan story. Over in China, we are seeing a mixed performance with the Hang Seng dropping 0.7% while the Shanghai Composite is a touch higher. We continue to hear rhetoric about the property sector over there which seems to be weighing on sentiment. EUR/USD slipped from around $1.306 all the way down to $1.2923 – a three-month low for the pair. Political concerns for the region, along with higher yields at an Italian bond auction were enough to weigh on the single currency.
Later today we have the ECB monthly bulletin, the EU economic summit and the region’s employment change. This could cause further volatility for EUR/USD. Although EUR/USD came within a whisker of reclaiming the 1.03 handle in Asia, it is clear traders will be looking at selling the pair on any recovery into that region. US and European data seem to be moving in opposite directions at the moment and as long as this is the case, it is difficult to get excited about the single currency. In the US, we have unemployment claims, PPI and current account data to look out for. Despite the weakness we are seeing in Asia, European and US markets are pointing to a moderately firmer open.
Stan Shamu filling in for Chris Weston, who will return Monday.
