Aussie exports surge in February on Asian demand for commodities

- Aussie exports come in stronger than expected as markets get ready for RBA rate decision: (AU FEB TRADE BALANCE: -838M V -1.1B expected; Prior revised to -832M from -876M) Despite the stronger AUD, Aussie trade figures indicated slightly softer than expected import growth offset by a further rise in exports, reflecting both higher commodity prices, and some help from higher volumes. Some have suggested that high AUD levels are not justified given expectations of a global slowdown in 2007. A worse than expected Aussie export performance in February might have re-shifted focus to the "slowdown idea", but this has not materialized from tonight's trade balance data. The consensus is that the improvement in the Aussie trade balance in early 2007 is likely to continue on Asian demand.

- Markets get ready for RBA rate decision on 4/3 at 19:30 ET: Markets are now pricing in a 62% probability the RBA will hike rates by 25bps tomorrow, up from 39% at the end of last week. The demand for AUD/USD is being encouraged by a rumor that one fund has an enormous buy order sitting beneath 0.8080. Some analysts suggest that the RBA will wait until the first quarter CPI results are released towards the end of the month so that they can be absolutely sure that further tightening is needed.

- Forex: The USD held steady during Asian trading after the ISM manufacturing data showed inflationary pressures building. The JPY held steady despite an increasing appetite for risk among investors. USD/JPY price action so far suggests that it could be completing a triangle formation and hence focus will be on 116.38 support.

- Asian Equities: The Nikkei is higher by more than 0.75%, boosted by gains in metals related shares. Shares of Isuzu gained after being upgraded at HSBC, while Mitsui gained after it was announced that the company had been awarded a ??90B contract. The Kospi is currently little changed as gains in shipbuilders were offset by losses in real estate shares and Posco Steel. The ASX 200 index is higher by more than 1.0% on rising metals prices and continuing M&A activity. Gains on the ASX 200 index are being led by BHP and Rio Tinto. Aussie traders remain cautious ahead of the RBA rate decision tomorrow. Chinese equities are gaining for the second consecutive session, led by gains in steel-related companies. The Hang Seng is higher by more than 0.50% after February Hong Kong retail sales came in much better than expected. The Hang Seng is approaching the 20,000 level and gains are being led by China Mobile and Esprit.

- Commodities: Spot gold and crude oil prices are trading lower after Iran ruled out a trial for the UK soldiers currently in its custody. Crude oil is holding below $66, while spot gold is below $670. Shanghai Copper is higher for the 3rd consecutive session on expectations for strong Chinese demand and supply-side constraints. Earlier the LME copper contract hit a 4-month high.