ISM Beats, RBA Up Next

More signs of a Spring pickup in the US economy emerged in the ISM services report. The data gave a lift to the US dollar and helped turnaround a sour mood. Asian trade could be crimpled by holidays in Japan and Korea but it will be busy Down Under with the RBA decision on tap. 

The ISM non-manufacturing index was the highest since August at 55.2 compared to 54.1 expected. It's a better sign that companies were restrained in the cold winter months. Especially impressive was the jump in new orders to 58.2 from 54.3.

The battle lines continue to be drawn in ECB-land. The EU lowered its growth and inflation forecasts and the ECB is more likely to do the same in June. Signals about low inflation worries will be the focus of Thursday's decision but today Mersch said he doesn't see any deflationary risk in the medium term.

The news and events Monday had a disappointing impact of FX as USD/JPY dropped to 101.89 in the early going then bounced back to 102.12 to finish the day. Holidays in Europe may have played a part in the narrow ranges.

Going ahead, keep a close eye on US Treasury yields. The 10-year note continues to test support as it touched 2.56%, only to bounce back to 2.61% on the ISM data. A break to the downside could finish off the USD/JPY bulls.

The first event on the upcoming calendar is at 0030 GMT with Australian trade balance for March. The surplus is expected to drift down to $1.0B from $1.2B but it's not likely to jar markets with the RBA decision following at 0430 GMT. The RBA has backed away from active AUD jawboning but the statement should continue to say the Aussie is high by historical standards. The outlook overall is little changed in Australia but less-worrisome language on employment could be a catalyst for AUD/USD.