Asia AM Digest: USD Falls as Powell Testifies, Trump Plans Tariff
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The US Dollar unperformed on Thursday and the S&P 500 tumbled 1.33%, falling to its lowest level in more than two weeks. Greenback’s decline began with a testimony from Fed Chair Jerome Powell to the Senate Banking Committee. There, he said that there is “no strong evidence of a decisive move up in wages”. Unlike what had happened at his testimony to congress on Tuesday, this time Fed rate hike expectations fell.
A couple of hours later, US President Donald Trump announced that the country will impose tariffs of 25 percent on imported steel and 10 percent on aluminum. Indexes such as the S&P 500 and the Nikkei 225 almost immediately tumbled, but the US Dollar remained resilient. It was not until later that the EU said that it will “react firmly to Trump’s tariffs” that the currency resumed its decline, and the Euro gained. As we have mentioned before, tariffs are good in theory but terrible in practice as it often leads to political artifice.
Sentiment-linked currencies such as the Australian and Canadian Dollars suffered amidst the plunge in stocks as a result of the tariff developments in the world’s largest economy. However, the New Zealand Dollar remained strong. This might have been the case due to it appearing as more attractive than its US counterpart from a yield perspective as Fed rate hike bets cool. The RBNZ is the only major central bank left that boasts a higher lending rate over its US cousin, for now.
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IG Client Sentiment Index Chart of the Day: AUD/USD
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Retail trader data shows 46.4% of AUD/USD traders are net-long with the ratio of traders short to long at 1.15 to 1. In fact, traders have remained net-short since Dec 19 when AUD/USD traded near 0.75109; price has moved 2.9% higher since then. The number of traders net-long is 3.6% lower than yesterday and 9.8% higher from last week, while the number of traders net-short is 4.5% lower than yesterday and 7.6% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUD/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 AUD/USD price trend may soon reverse lower despite the fact traders remain net-short.
Five Things Traders are Reading:
- Canadian Dollar Rate Forecast: Trump’s Tough Tariff Talk Drops Loonie by Tyler Yell, CMT, Forex Trading Instructor
- Central Bank Weekly: Fed Rate Hike Odds Increase; BOC, BOE May Odds Drop by Christopher Vecchio, Sr. Currency Strategist
- Sentiment Suggests Bitcoin May Struggle to Gain Solid Footing by the DailyFX Research Team
- Forex Technical Outlook: USD/CHF Rallies to Fresh Monthly Highs by Michael Boutros, Currency Strategist
- DXY Falls On Powell’s Testimony Before Senate Banking Committee by the DailyFX Research Team
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