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Asia AM Digest: USD/CAD at 8-Month High, Theresa May Boosts Pound

Asia AM Digest: USD/CAD at 8-Month High, Theresa May Boosts Pound

Research, Research Team

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The Canadian Dollar once again came under fire on Monday with USD/CAD rising to its highest level since July 2017. US President Donald Trump continued fretting about the country’s trade deficit with Canada and noted that NAFTA “has been a bad deal for U.S.A”. Pressure seemed to be placed on negotiators to come up with a deal as Mr. Trump added that tariffs will “only come off if new & fair NAFTA agreement is signed”.

Meanwhile the British Pound was one of the best performing majors. Sterling was boosted towards the latter half of the session when UK’s Prime Minister Theresa May announced that they are close to an agreement on a Brexit transition. Progress seems to be in the making since last week when she rejected a proposed Brexit draft from the EU.

Elsewhere, the Euro finished the day stronger as the Italian election outcome pointed to no single party having a majority, resulting in a hung parliament. Perhaps the markets took this as a more favorable outcome than having the eurosceptic Five Star Movement, which boasted the largest share of the vote, hold a majority.

The anti-risk Japanese Yen underperformed, undermined by a push higher in stocks. The S&P 500 closed the day 1.37% higher. Newswires partially attributed this to House Speaker Paul Ryan urging the president to reconsider his proposed tariffs.

Keep an eye out for Tuesday’s RBA monetary policy announcement. While no change is expected there, the markets will be looking for hints as to when the next one could occur. However, there are scope for hawkish bets to be undermined. For those interested in finding out what this event could further entail for the Australian Dollar, Senior Currency Strategist Ilya Spivak will be covering this event live here.

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

CLICK HERE to learn more about the IG Client Sentiment Index

Retail trader data shows 39.6% of NZD/USD traders are net-long with the ratio of traders short to long at 1.53 to 1. In fact, traders have remained net-short since Jan 05 when NZD/USD traded near 0.70673; price has moved 2.4% higher since then. The number of traders net-long is 5.9% higher than yesterday and 24.9% higher from last week, while the number of traders net-short is 5.4% higher than yesterday and 6.0% lower from last week.

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

Five Things Traders are Reading:

  1. AUD/USD Vulnerable to Dovish Reserve Bank of Australia (RBA) Comments by David Song, Currency Analyst
  2. FX Markets Await RBA, BOC, ECB, BOJ Decisions and US NFP by Christopher Vecchio, Sr. Currency Strategist
  3. Elliott Wave Webinar: Dow Jones, EURUSD and AUDUSD At Risk of Correction by Jeremy Wagner, CEWA-M, Head Forex Trading
  4. Weekly Technical Perspective on USD/CHF, AUD/USD and AUD/JPY by Michael Boutros, Currency Strategist
  5. USD/CAD Rate Outlook: RSI Pushes into Overbought Ahead of BoC Meeting by David Song, Currency Analyst

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.