Asian Market Update: Soft start for the USD ahead of a data-heavy week - New Zealand's January trade deficit came in worse than expected (Jan Trade Balance: -833M v -645Me). The prior (December) deficit was revised lower to -352M from -433M. The main surprise in the data was the surge in imports (imports for the three months ended January were up 3.5% to $10.2B). Kiwi imports continued to be underpinned by solid growth in consumption and intermediate goods, suggesting strong demand in the New Zealand economy, which may lead to tightening from the RBNZ. Kiwi trade balance data was followed by an improvement in Feb business confidence and business activity, which caused the NZD/USD to extend session highs above the $0.7085 level. For the next session traders will be focusing on NZ's January building permits, as the RBNZ's Governor Bollard has in the past said that he underestimated the strength of the NZ property market, while others in the NZ government are contemplating a mortgage tax to slow the real estate market. - Major Currencies: The big winner of tonight's session is the Swiss franc. The franc gained 0.20% against the USD as some carry trades unwound (AUD/JPY, GBP/JPY, EUR/CHF all in negative territory). The Swiss franc is also gaining from geopolitical tensions on save haven flows. EUR/USD pushed close to the 1.3200 level, but traders were not willing to test that resistance ahead of today's light economic schedule. Looking ahead, most analysts are expecting a week of soft US data, especially on the housing front. Many analysts are talking about the USD's unimpressive recovery against the EUR last week despite the stronger than expected core inflation numbers. This confirms the bearish tone of the USD ahead of this week. Former Fed chairman Greenspan added his voice to the chorus of USD bears, saying that a US recession in possible in late 2007 (Greenspan says that US profit margins are shrinking, which is an early sign that the US is in the later stages of a cycle). - Asian forex: The Korean Won and Taiwan dollar are tracking gains in the JPY against the USD, with foreign interest in domestic equities providing good support. The Thai Baht is lower by more than 4.5% against a broadly weaker USD after reports that Singapore investment in Thailand fell by 88% y/y in Jan, following tensions between the two countries. The Singapore dollar is at its highest point against the USD since October of 1997 ahead of today's January industrial production report. The market is expecting that Singapore's industrial production rose by 16.0% v a prior gain of 5.1%. - Asian Equities: Despite an uninspiring US equity performance on Friday and higher oil prices, the Nikkei had a strong morning session, but succumbed to profit taking at the start of the afternoon session. Nikko Cordial and commodity related stocks gained. Some traders are noting that signs of a rebound in retail demand for equities is a positive for the Nikkei going forward. Some technical analysts see further gains on the Nikkei, given up-down ratios and the Nikkei's divergence from its moving averages. The ASX 200 is lower on profit taking, despite gains in mining shares. South Korea's KOSPI is little changed as a rise in the Won against the USD hurt shares of exporters, while shares of Doosan Industrial rose after Goldman Sachs raised its price target for the company. Following a long holiday break, the Taiwanese Taiex is higher by more than 1.45%, driven by gains in electronics shares. Chinese equities are lower in the first session of trading since the PBoC upped its reserve requirement to 10.00%. Shares on the Hang Seng are lower by more than 0.50% in cautious trading ahead of the settlement of February futures contracts. Declines on the Hang Seng are led by shares of China Mobile, which is seeing sharp profit-taking. HBSC also fell on fears that its weighting could be reduced once upcoming changes are made to the Hang Seng. - Commodities: Shanghai Copper opened up by its daily limit (4%) tracking sharp recent gains in the LME contract. Spot gold and crude oil trading being dominated by the possible implementations of more sanctions on Iran. Crude oil is holding above the $61 level, while gold is holding above the $690.50 level and near 9-month highs as traders eye the $700 level. Tokyo Platinum rose to a all-time high tracking gains in gold.