Asia AM Digest: Aussie Dollar Response to China CPI May Not Last

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The New Zealand Dollar was a standout performer in yesterday’s session, scoring late-day gains following an unexpectedly upbeat RBNZ monetary policy announcement. The central bank kept the target cash rate unchanged as expected but hinted that a hike may arrive sooner than previously thought.

The US Dollar struggled amid lingering uncertainty about the fate of tax cut legislation, which markets expect might boost inflation and force the Fed into a steeper tightening cycle if it is passed. The yields-sensitive Aussie Dollar – often a favored carry alternative to the greenback – duly traded higher.

The British Pound was weakest on the day as turmoil within the beleaguered administration of Prime Minister Theresa May continued to swell. International Development Secretary Priti Patel resigned after an “unauthorized” meeting with Israeli officials drew ire. This follows the exit of defense secretary Michael Fallon in the wake of impropriety accusations.

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

October’s Chinese CPI data headlines the economic calendar in Asia Pacific hours. The headline year-on-year inflation rate is expected to rise to 1.7 percent after a dip to 1.6 percent in the prior month. A significant deviation form expectations may generate a response from the Aussie Dollar, the markets frequent proxy for trading developments in the world’s second-largest economy. Lasting follow-through may be too much to ask for however considering the currency remains anchored by standstill at the RBA.

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IG Client Sentiment Index Chart of the Day: EUR/USD

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Retail trader data shows 39.9% of traders are net-long EUR/USD, with the ratio of traders short to long at 1.51 to 1. The number of traders net-long is 6.7% higher than yesterday and 21.3% higher from last week, while the number of traders net-short is 1.9% lower than yesterday and 8.2% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD 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 EUR/USD price trend may soon reverse lower despite the fact traders remain net-short.

Five Things Traders are Reading

1. Japanese Yen Falls as Nikkei 225 Gains Overshadow Export Growth by Daniel Dubrovsky, DailyFX Research
2. NZ Dollar Gains as RBNZ Sees Raising Rates Sooner Than Before by Daniel Dubrovsky, DailyFX Research
3. Bitcoin Surges then Sinks as ’Segwit2x’ Fork is Called Off by Christopher Vecchio CFA, Sr. Currency Strategist
4. Crude Oil Prices Reach Highest Level Since July 2015 - How Much Farther? by Jeremy Wagner, CEWA-M
5. EUR/JPY Technical Analysis: Bigger Picture Breakdown Potential by James Stanley, Currency Strategist

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