Asia AM Digest: NZ Dollar May Rise on Election Outcome Clarity
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The US Dollar corrected higher against its major counterparts. The currency rose alongside front-end Treasury bond yields while gold prices fell, hinting that Fed policy hawks may be back in control of the narrative after last week’s retreat.
Tellingly, rate-sensitive currencies at both ends of the G10 FX spectrum – the Australian and Canadian Dollars on the high-yielding side and the Japanese Yen at the opposite extreme – bore the brunt of the greenback’s rediscovered vigor. The New Zealand Dollar marked time amid continued post-election uncertainty.
DailyFX Economic Calendar: Asia Pacific (all times in GMT)
With New Zealand CPI data already out of the way, minutes from October’s RBA meeting amount to the only noteworthy item left on the Asia Pacific economic calendar. This release rarely strays from the message delivered in the central bank’s post-meeting statement, so it may not see a lasting market response.
Meanwhile, NZ First party leader Winston Peters may finally announce if his bloc will support ruling National or opposition Labour to form a new ruling coalition after last month’s general election produced a hung parliament. A definitive outcome may be broadly supportive for the Kiwi in the near term as uncertainty ebbs, regardless of who takes the reins.
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IG Client Sentiment Index Chart of the Day: USD/JPY
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Retail trader data shows 45.9% of traders are net-long USD/JPY, with the ratio of traders short to long at 1.18 to 1. In fact, traders have remained net-short since Oct 06 when USD/JPY traded near 112.802; price has moved 0.9% lower since then. The number of traders net-long is 16.6% higher than yesterday and 13.9% higher from last week, while the number of traders net-short is 7.3% higher than yesterday and 12.1% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/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 USD/JPY price trend may soon reverse lower despite the fact traders remain net-short.
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