Aussies Drops On Housing Data, Markets Steady Elsewhere

The aussie suffers some selloff as the week starts, while markets are generally steady elsewhere. Australian building approvals dropped for the second straight month by -2.4% mom in January, comparing to consensus expectation of 2.8% rise. The AUD/USD pair dips to five month low ahead of tomorrow's RBA rate decision. The Central Bank is widely expected to keep rates unchanged at 3.00% tomorrow. In February, Governor Stevens noted that the current rate is working well and appropriately for the moment. He warned that the economy entered 2013 at a pace a little below trend. Markets are still expecting a 25bps cut to record low of 2.75% in Q2, but the chance would very much depends on incoming data over the next two months. Technically, while the AUD/USD was clearly in a near term down trend from 1.0597, the downside momentum hasn't been convincing so far. It's expected selloff will accelerate a little if the near term support at 1.0148 is taken out.

In Japan, BoJ governor nominee Kuroda pledged to "do whatever we can do" to end deflation, and expressed his confidence of meeting the 2% inflation target. Kuroda attends a confirmation hearing in parliament in Tokyo today. He noted that the "scale and scope" of assets purchased so far by the BoJ is insufficient. He emphasized that the BoJ "must clearly send out the message, through communication with markets, that it will do whatever it can to beat deflation." And, "if the BoJ were to ease policy, it would therefore be most natural to increase government debt purchases and target longer-dated bonds." Regarding the yen, Kuroda noted that "currencies tend to fall for countries that ease monetary policy on a large scale" but he emphasized the polices are to "ensure price stability and achieve the 2 percent price stability goal, although it could affect currencies in that process."

The euro continues to hover around a 1.3 psychological level against the dollar for the moment. Eurozone finance ministers will meet in Brussels today. The bailout deal for Cyprus is a focus discussion, but it could be overwhelmed by the Italian political situation. Over the weekend, President Giorgio Napolitano said that political leaders should resolve the post-election deadlock with "realism, a sense of responsibility". Meanwhile, it's clear that Democratic Party leader Bersani will not form a coalition with former prime minister Berlusconi. Bersani is indeed working to team up with Grillo. But if he fails, another election will be held in the summer - which would cause months of uncertainties.

Latest CFTC data showed that positions in Euro, Sterling and Canadian dollar deteriorated sharply in the week leading to February 26. Euro positions turned to -9.4k net short contracts, down from 19.1k net long in the prior week. Note that this is the third consecutive of deterioration. Speculators just managed to stay net long in Euro for seven weeks. Sterling's positions deteriorated further to -36.1k net shorts. That compared to 37.3k net longs back in December. Positions have deteriorated in seven of the last eight weeks. Yen position was relatively steady at -65.3k. Australia net longs dropped further to 25.7k, less than 1/4 of December's high of 103.4k. Canadian dollar positions also deteriorated sharply to -21.4k net shorts, compared to the prior week's 19.4k net longs - compared to 74.3k net longs back in December.