Asia AM Digest: Aussie, NZ Dollars Rise as Markets Brace for FOMC

2017-12-13 00:00:00 Research, Research Team

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The Australian and New Zealand Dollars outperformed in yesterday’s trade, in a move that may reflect pre-positioning ahead of the upcoming Fed policy announcement. The US central bank is widely expected to raise rates but the 2018 tightening path remains an object of intense speculation.

The two commodity currencies are threatened with being displaced as the highest yielders in the G10 FX space if the FOMC proceeds with the previously planned three rate hikes next year while their own central banks manage just one apiece. That would make them natural beneficiaries if the Fed takes a dovish turn.

The Euro and the British Pound traded broadly lower in what may have reflected regional portfolio readjustment after an unexpectedly strong Swedish CPI print. That sent SEK broadly higher, with NOK not far behind. Upbeat UK CPI failed to similarly impress considering the BOE’s reluctance to raise rates.

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Retail trader data shows 45.2% of traders are net-long EUR/USD, with the ratio of traders short to long at 1.21 to 1. The number of traders net-long is 1.5% lower than yesterday and 14.2% higher from last week, while the number of traders net-short is 4.1% lower than yesterday and 16.5% lower 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.

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