Has The Aussie Regained Its Momentum?‏

Market Drivers For June 09, 2014

• Markets very quiet as half of Europe on holiday
• Chinese Trade data up on smaller imports
• Nikkei 0.31% Europe .16%
• Oil $103/bbl
• Gold $1254/oz.

Europe and Asia
CNY: Trade Balance 35.9B vs. 22.5B
JPY: Final GDP 1.6% vs. 1.4%
EUR: Sentix 8.5 vs. 13.5

North America
CAD: Housing starts 8:30 AM

Markets were extremely quiet on the first trading day of the week, as half of Europe and part of Asia were out on bank holidays and the event risk calendar was practically barren. The Aussie was the standout of the night as the pair continued to climb above the 9350 level benefiting from the global hunt for yield.

Over the weekend, Chinese trade data was released, with the report showing a significantly bigger surplus than forecast. The Chinese Trade Balance increased to 35.92B vs. the 22.6B anticipated, with the gains being led primarily by exports, which jumped an impressive 7.0%. Imports declined by 1.7%, raising concerns about domestic demand in China; however, the headline figure was not as weak as it appeared, as May last year was a seasonally strong month for imports.

Overall, the Chinese trade data echoed some of the other recent economic releases from the region that essentially point to a stabilizing economy that is benefiting from a pick up in global demand. Against such a background, it is easy to see why the the Aussie has continued to gain momentum. As the highest yielder in the G-20 universe, with deep, liquid markets for its bonds; Australia remains the primary attraction for global investors starved for yield.

In fact, some analysts, including Morgan Stanley, now forecast the possibility of the Aussie reaching parity by year end as yields remain low in both the US and Europe. While parity is certain to raise the ire of Australian monetary authorities, who may even respond with a rate cut in such a scenario, the Aussie certainly looks strong on a relative basis. It has performed particularly well against the euro and could gain further strength this week if the labor data on Wednesday proves supportive. EUR/AUD flirted with the 1.4500 figure last week in the wake of the ECB announcement and could break that level this week if Australian labor data shows steady job growth.

In North America, the calendar is very quiet today as well, and trading may remain lackluster throughout the day with currencies holding their narrow ranges. US yields appear to have stabilized above the 2.50% level and if they can continue their recovery above 2.60% the greenback may see a modest bid with USD/JPY inching towards 103.00 while EUR/USD slides back towards 1.3600 as the day proceeds.