Asia AM Digest: Is the US Dollar Trading as a Haven Yet Again?
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The US Dollar and Yen advanced in tandem alongside Treasury bonds while the benchmark S&P 500 stock index declined, hinting the two currencies’ gains reflected haven demand and the unwinding of carry trades. That is a common occurrence for the perennially anti-risk Japanese unit but something of a departure for the greenback, at least recently.
Indeed, the US currency is now the third-highest yielder in the G10 FX space. That makes it anything but an obvious funding currency for carry-oriented strategies, so seeing it rise amid risk aversion speaks to elevated liquidity demand. That may imply something more dire than a brief risk-off correction brewing under the surface, although it is too early to say for sure as market participation rebuilds after last week’s lull.
The New Zealand Dollar outperformed however. A sole catalyst for the move is not apparent, but it may reflect corrective flows after the Kiwi’s Friday losses. The CFTC Commitment of Traders report put speculative positioning at its most net-short in seven months last week. That may mean gains reflected pre-positioning before RBNZ Governor Spencer testifies in Parliament later this week.
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IG Client Sentiment Index Chart of the Day: AUD/JPY
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Retail trader data shows 51.3% of traders are net-long AUD/JPY, with the ratio of traders long to short at 1.05 to 1. In fact, traders have remained net-long since Nov 15 when AUD/JPY traded near 86.53; price has moved 2.4% lower since then. The percentage of traders net-long is now its lowest since Nov 16 when AUD/JPY traded near 85.763. The number of traders net-long is 12.5% lower than yesterday and 5.9% lower from last week, while the number of traders net-short is 24.4% higher than yesterday and 35.4% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUD/JPY 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 AUD/JPY price trend may soon reverse higher despite the fact traders remain net-long.
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