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MARKET DEVELOPMENTS – NZD DROPS AFTER DOVISH RBNZ

US equity futures flat this morning, following the somewhat lacklustre lead from European bourses. Little in the way of notable events to drive any significant price action with the trade war between China and the US continuing to cloud the economic outlook.

NZD: Yesterday saw the release of the latest RBNZ monetary policy meeting. The central bank had caught many by surprise by committing to keep interest rates at record lows until 2020, having lowered their OCR forecast. This was largely in response to the underlying weakness in the New Zealand economy, while trade wars also provide a bout of uncertainty. Consequently, NZDUSD fell to the lowest since late 2016 on the dovish announcement, the pair breaking below support at 0.6700to hover around the mid 0.66 area.

RUB: The Rouble is down around 4% over the past 24 hours after the US said it would impose fresh sanctions in relations to the nerve agent attack on a former Russian spy in the UK. Alongside this, the Rouble took a further knock on reports stating that a new US Senate bill that, if passed would impose even more punishments on Russia for meddling in US elections.

TRY: Another day another record low in the Turkish Lira. Losses have extended given the little progress made between the Turkey and the US over the imprisonment of an American Pastor. If an agreement is met between the two countries this will likely provide a rally bid in the Lira, however, until then, losses look set to continue.

DailyFX Economic Calendar: Thursday, August 9, 2018 – North American Releases

NZD Drops After Dovish RBNZ, TRY and RUB Suffer - US Market OpenNZD Drops After Dovish RBNZ, TRY and RUB Suffer - US Market Open

DailyFX Webinar Calendar: Thursday, August 9, 2018

NZD Drops After Dovish RBNZ, TRY and RUB Suffer - US Market Open

IG Client Sentiment Index: NZDUSD Chart of the Day

NZD Drops After Dovish RBNZ, TRY and RUB Suffer - US Market Open

NZDUSD: Data shows 68.8% of traders are net-long with the ratio of traders long to short at 2.21 to 1. In fact, traders have remained net-long since Apr 22 when NZDUSD traded near 0.72691; price has moved 8.5% lower since then. The percentage of traders net-long is now its lowest since Aug 02 when NZDUSD traded near 0.67374. The number of traders net-long is 3.7% lower than yesterday and 5.5% higher from last week, while the number of traders net-short is 14.9% higher than yesterday and 10.5% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests NZDUSD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current NZDUSD price trend may soon reverse higher despite the fact traders remain net-long.

Five Things Traders are Reading

  1. US Dollar Digestion Comes Back Ahead of US Inflationby James Stanley, Currency Strategist
  2. CAD to Shrug Off Canada Row With Saudi Arabia" by Martin Essex, MSTA, Analyst and Editor
  3. FTSE 100 Analysis: Russian Sanctions and Large Cap Ex-Divs Drag on FTSEby Justin McQueen, Market Analyst
  4. GBPUSD Analysis: Dip Buyers Seen at Multi-Month Sterling Lowsby Nick Cawley, Market Analyst
  5. Trade Wars and Sanctions Dominating Markets, Effects to Persist” by Martin Essex, MSTA, Analyst and Editor

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX