USD/JPY Tests 104, Aussie Action Next

USD/JPY rose for the fifth day on Wednesday, hitting the highest since late January. The US dollar was the top performer on Wednesday and the kiwi lagged. Keep a close eye on the Australian dollar in the hours ahead with trade balance, retail sales and a speech from Stevens on the schedule.

The price action on Wednesday looked a lot like position squaring ahead of the major event risks in the next 40 hours including the ECB, ISM non-manufacturing survey and non-farm payrolls. The tell might be the fall in NZD/USD as it peels back after hitting the highest since 2011 on Tuesday.

The exception was USD/JPY, which remained perky although it was unable to break 104.00. Stocks are supporting the pair as the S&P 500 closed at a fresh record and the Nikkei is slated to rise for the sixth time in the past 7 sessions. A further rise in bond yields will be needed to sustain the rally. 10-year Treasury yields are flirting with the March high of 2.82% and a break would be a bullish signal.

Don't underestimate the importance of the ISM non-manufacturing index on Thursday. It's a better look at the real-time trajectory of the economy with weather improving while hiring is more of a lagging indicator.

The first event to watch on the Asia-Pacific calendar is the Markit Japan PMI at 2315 GMT. There is no consensus and the prior was 49.3. Given that Tankan data had little effect on the market, this is highly likely to be a non-event. A month from now, the market will be looking closely at April data as the effects of the consumption tax hike are weighed.

The main events come at 0030 GMT with Feb trade balance and retail sales from Australia. A surplus of A$800m is expected along with a 0.3% m/m rise in sales. Signs of strength in the economy could easily boost AUD/USD as the market prices in rate hikes sooner.

Finally, at 0150 GMT, RBA Governor Stevens speaks in Brisbane. He's cooled his efforts to jawbone the aussie lower, probably because he can't credibly threaten action.