AUD/USD hits 10yr high on strong retail sales data

- Aussie retail sales beat expectations, with markets now seeing a RBA rate hike this week: (AU FEB RETAIL SALES: 0.9% V 0.4% expected; Prior retail sales revised to 0.8% from 0.9%) Ahead of the release, 30-day interbank futures market priced in a 36% chance the Reserve Bank of Australia would lift rates by 25 basis points to 6.50% at its meeting on Tuesday. After the release, the probability priced in was 57% (according to a Credit Suisse index). AUD/USD moved above 0.8107 (near term resistance level), and managed to move to a 10yr high. Positioning data suggests that speculators have fuelled much of the AUD's rise over the last two weeks, and the AUD/USD could fall victim to "sell on the fact" price action if the RBA had to hike rates this week. In a related piece of data that adds to the idea of a RBA rate hike this week, the TD Securities inflation index came in much stronger than expected (March TD Securities Inflation MoM: 0.5% v 0.2% prior; YoY: 3.5% v 3.4% prior)

- Japan's Tankan survey fails to change the consensus that BoJ will slowly raise rates: (JP Q1 TANKAN LARGE MANUFACTURERS INDEX: 23 V 24 expected; OUTLOOK: 20 V 22 expected) (JP Q1 TANKAN NON- MANUFACTURING: 22 V 23 expected; OUTLOOK: 23 V 22 expected) Japanese government bond and stock markets largely ignored the survey, and the USD/JPY briefly weakened to 118.00. The headline figure for large manufacturers was the lowest level since June 2006 and the first time in a year for the headline index to worsen. The survey showed big firms expect their capex to climb 2.9% in the new financial year (compared with consensus for a 1.7% rise and 11.9% growth in the last business year). Analyst warned investors that Japanese firms traditionally take a conservative view of capital spending plans ahead of the start of a business year and tend to upgrade their capex plans later in the year.

- Asian Equities: The Nikkei 225 is higher by more than 0.50% after the Bank of Japan's Q1 Tankan survey's capex and non-manufacturers outlook components came in better than expected. Gains on the Nikkei were led by shares of autos and electronics shares. Following the Tankan, HSBC became more bullish on Japanese equities and raised its year-end target for the Topix to 1,850 from 1,750 (last trade: 1,717). The Kospi is higher by more than 0.50% on gains in shares of automakers and semiconductor stocks on bullish South Korean export data. South Korean shares also added on hopes that the U.S. and South Korea are nearing a free-trade agreement. The ASX200 index is holding near session lows, down by more than 0.75%, as a rise in Australian retail sales raised fears that the Reserve Bank of Australia may hike rates at its upcoming meeting. Declines on the ASX 200 index were led by banks and mining shares. Chinese equities are trading higher on gains in shares of Baoshan Iron & Steel. Chinese equities are set for another record close as PboC adviser Fan Gang warns of a potential Chinese asset bubble. The Hang Seng is tracking gains in Chinese shares and is higher by more than 0.70% on gains in shares of Cheung Kong and Esprit.

- Commodities: Crude oil is lower and below the $66 level after Gas de France reached an agreement with its Marseille port workers. Spot gold is higher, but well off of session's highs on the Iran hostage situation and a rebound in the USD. Shanghai Copper is higher after a key Chinese think-tank raised its Q1 forecast for China's economic growth (China State Info Center now sees Q1 GDP growth of 11% v prior view of 10.2%). Shanghai copper is set to close at a 15 week high.