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OANDA Asia - March Madness

Please attribute the following comments to Stephen Innes, senior trader at OANDA Asia Pacific

March Madness
There could be some big currency moves this month. After Friday's U.S. non-farm payrolls report, we have the European Central Bank meeting next week, followed by meetings from the FOMC and Bank of Japan. The yen will be in focus as it is the fiscal year end in Japan this month. The Land of the Rising Sun’s currency has already lifted more than 5% in the last two months. Then there’s a potential meeting between OPEC and non-OPEC oil ministers which could shake oil prices up a little.

Early in London, USDJPY rallied up to 114 with a strong stock and oil market. The positive ISM manufacturing data supports the risk sentiment. The USDJPY is bullish with Nikkei rallying in Asian time. The downside risk is Australia's GDP and take profit sell order. From a technical view, USDJPY broke up 114.00, last weekend high yesterday. It seems that the market sees around 114.87, 16 Feb high. It's entirely possible that it tried the 115.00 level.

Rally on the cards
Global equities are ripping higher as virtually every stock market has risen overnight as markets embrace Monday’s PBOC RRR cut. Signs of this equity rally kicked off in Asia yesterday, despite disappointing China PMI data. However, there's a growing conviction among traders that the PBOC is very likely to enact further stimulus so that this rally could have some longevity.

Aussie gets GDP boost
We have been waiting for Australian Q4 GDP data this morning, and it came in at 0.6% vs. 0.4% on the headline figure. As a result of this, the Aussie has jumped over 50 pips, trading well above the psychological 72.00 level. This print was hugely unexpected and should be very Aussie dollar supportive, adding more appeal to the Aussie carry argument.

Before the GDP print, the Aussie had benefited from the bounce in global risk sentiment but has also gained positive momentum after the release of yesterday's RBA cash rate policy statement when central bank governor Stevens did not sound off any alarm bells in the accompanying policy declaration. Australian manufacturing activity accelerated in the month of February, which was a bit of a surprise and helps explain the neutral posture of the central bank.

It seems neither the uptick in January unemployment nor the weak forward CAPEX outlook had any impact on the RBA's forward guidance which suggests the RBA will continue to sit tight unless economic conditions take an unexpectedly massive downturn. I think this should keep the Aussie dollar supported short term.

Black spot
However, it’s not all a bed of roses. Just when the markets see some light at the end of the tunnel, Moody's decides to cut China’s Sovereign Rating outlook to negative from stable but affirms its AA3 rating. We should expect a little negative fallout from the forward rating outlook, but the reaffirmation of the AA3 rating will likely carry the day. But none the less still highlights the view of a struggling economy

Malaysia
Spot opened 4.15-16 level, but the bid side remains well supported, likely on the back of profit takers. WTI remains supported just above 34.00 in March Futures and a break above 34.15 will probably induce another wave of UDMYR selling. Again WIT continues to be the primary driver.

China fix
Pboc set the Yuan midpoint at 6.5490 v 6.5385 prior, the weakest Yuan fix since February 3, 2016. The markets were expecting a move above 6.55 but all in all not far off expectations as the market dials in on the new fixing mechanism.

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