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Asia AM Digest: NZ Dollar Sinking, Aussie Eyes China PMI Data

Asia AM Digest: NZ Dollar Sinking, Aussie Eyes China PMI Data

Research, Research Team


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The New Zealand Dollar is under pressure at the start of the trading week, with prices weighed down by political uncertainty fears as coalition talks following an inconclusive general election heat up. All eyes are on New Zealand First party leader Winston Peters, who has emerged as kingmaker. The ruling National and opposition Labour parties are seeking his support to form a ruling bloc in Parliament. Peters has until October 12 to make a decision.

The British Pound attempted to correct higher following Friday’s outsized losses but the bounce proved to be short-lived. The UK unit has faced selling pressure as infighting within the ruling Conservative party frustrates Brexit negotiations. The anti-risk Japanese Yen is on the upswing as Nikkei 225 futures point to risk aversion ahead of the opening bell in Tokyo.

DailyFX Economic Calendar: Asia Pacific (all times in GMT)

The private-sector Caixin set of service-sector and composite Chinese PMI figures headline an otherwise quiet data docket in Asia Pacific trading hours. Mixed cues ahead of the release may stoke volatility when the results cross the wires. On one hand, analogous official PMI figures have shown improvement. On the other, economic news-flow out of the world’s second-largest economy has broadly soured relative to baseline forecasts in recent months.

A strong result may bode well for overall risk appetite as well as the Australian Dollar, a frequent proxy for trading China-related developments for foreign exchange markets because of its home country’s close trade links with the East Asian giant. However, that also implies that a soft outcome may sour investors’ mood and pressure the Aussie.

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IG Client Sentiment Index Chart of the Day: GBP/JPY

CLICK HERE to learn more about the IG Client Sentiment Index

Retail trader data shows 43.3% of traders are net-long GBP/JPY, with the ratio of traders short to long at 1.31 to 1. In fact, traders have remained net-short since Sep 22 when GBP/JPY traded near 152.636; price has moved 3.6% lower since then. The number of traders net-long is 8.2% higher than yesterday and 26.3% higher from last week, while the number of traders net-short is 19.3% lower than yesterday and 25.0% lower from last week.

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

Five Things Traders are Reading

  1. Weekly Trading Forecast: Politics Menace Markets Yet Again by DailyFX Research
  2. NFPs Ease S&P 500’s Record Breaking Run, Dollar Advance But Ends Neither by John Kicklighter, Chief Currency Strategist
  3. Gold Prices Might Get Temporary Relief by Jeremy Wagner, CEWA-M
  4. EURUSD Weekly Technical Analysis: Euro Setting Up for a Bounce by Paul Robinson, Market Analyst
  5. US Dollar Unfazed Despite 33K Job Loss Following Non-Farm Payrolls by Dylan Justino, DailyFX Team

The Asia AM Digest is published every day before the Tokyo cash equity open - you can sign up here to receive that report in your inbox every day. The US AM Digest is published every day before the US cash equity open - you can sign up here to receive this report in your inbox every day.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.