The price action was relatively muted in the NY session as the hangover from the holiday weekend continued to keep volume depressed. The US dollar continues to trade rather sideways but has put in some short-term rallies on the back of the constructive nonfarm payrolls report from Friday. What has been a good directional call is the move in USD/JPY. Here the conclusion to year-end (and yen positive) repatriation flows coupled with the back-up in US 10-year yields have pushed the pair to fresh near-term highs. While the initial move towards 95.00 was cut short (94.78 the high), the overall bias higher remain in place while we trade above the 94.00 zone.

The sloppy Treasury auctions of two weeks ago have many speculating that we could see more of the same (higher yields) this week when we get the results of the 3-, 10-, and 30-year offerings. The 4.0% level in the 10-year was breached just marginally in NY trading and the recent relationship between this and USD/JPY points to the cross trading near 95.80 if it manages to close above in the next few days. For the longer-term trader, the 10-year above 4.0% would also be breaking an inverted head and shoulders pattern with a measured move objective towards the 7% zone. This would mean USD/JPY towards 140 in the longer-term if the recent commensurate relationship held - still a ways away on both fronts, but worth a mention.

US economic data highlighted the early part of the session and it came in decidedly constructive. The ISM services index shattered consensus expectations by printing a 55.4 read in March on the heels of a 53.0 result the prior month. The forward-looking components were strong as new orders surged to 62.3 from 55.0 prior. Employment also edged higher to 49.8 from 48.6 and the best print since April 2008. This confirmed the growth in private payrolls that was flashed in the employment report last week. The US housing front also looks a little rosier with pending home sales jumping 8.2% in the month of February. The market had anticipated a depressed read on the back of the harsh winter weather. This metric leads actual sales by a couple of months and could be pointing to a robust (relatively speaking) spring selling season ahead.

On the radar now in the Asia session is the RBA rate decision due 30 minutes past midnight NY time. The consensus is for a 25 basis point increase to 4.25% but anything but unanimous. There are nearly 10 economists looking for no change in rates and the fixed income market has the probability of a hike right around 50%. This is the proverbial coin flip. If we take into account the pretty disappointing data out of Australia last month, we could (and indeed will) make the case for an RBA on hold this time. Should this be the outcome, a squeeze lower in AUD/USD would very likely be in the offing. However, keeping in mind the longer-term fundamental picture in Australia (very constructive) would make any dip through 0.9100 and ahead of 0.9000 a good buying opportunity, in our view.