Aussie Dives Following Trade Balance, ECB Awaited

Asian equities are broadly lower today, following the sharp -217 pts fall in DOW overnight, which was the second largest this year. While the economic data released from U.S. were mixed, it's believed that the sharp fall was not triggered by a single piece of data. Instead, it's a recent change in sentiments in the market. On the one hand, there were increasing speculations that Fed would start tapering the asset purchase later this year. On the other hand, there were concerns that US economy is not strong enough yet. Also, investors turned cautious ahead of Friday's non-farm payroll report, which might follow the ADP data and disappoint. In the currency markets, though,the dollar remains steady in range even though it's soft against European majors.

The Fed's Beige book economic report showed that the economy expanded at a "modest to moderate" pace in 11 of 12 districts. The report noted that hiring increased at a "measured pace" in "several districts". Meanwhile, most districts noted "slight to moderate" gains in consumer spending. Manufacturing activity expanded in most districts. Residential real estate and construction activity expanded as a "moderate to strong" pace in all districts. Inflation pressure remained limited.

While most of the currencies are steady in range, the Australian dollar is notably weaker following trade balance report. Trade surplus narrowed sharply to AUD 0.03b in April comparing to expectation of AUD 0.21b. Exports dropped -1.1% mom while imports rose 1% mom. The AUD/USD broke through 0.9527 near term support to resume recent decline as low as 0.9441 so far. The EUR/AUD's rally accelerates to as high as 1.3863.

The ECB meeting is the main focus today. The ECB is expected to leave the monetary policy unchanged, following a rate cut in the previous month, although a more dovish tone signaling further rate cuts to come in the second half of the year. Although policymakers appeared to be open to cutting the deposit rate to negative level, policymakers remain cautious about the risks and the negative impacts to be brought about by a negative deposit rate. This month, the ECB will also release a new set of staff economic projections which will probably present less growth. Lower oil prices, abandoned tax hikes and a disappointing April GDP data have sent the inflation outlook lower.
The BoE is expected to leave rates and asset purchase target unchanged, and will be a non-event. The Swiss CPI, German factory orders, U.S. jobless claims and Canadian Ivey PMI are slated for release.