Asia AM Digest: Trade War Fears Cool, Tariff Signing on Horizon
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Wednesday’s trading session started off with a dose of market-wide risk aversion as Donald Trump’s top economic adviser Gary Cohn resigned, triggering more trade war fears. The Nikkei 225 and S&P 500 declined while the anti-risk Japanese Yen gained. However, by the end of the day this dynamic reversed course and a handful of assets and most currencies were left little changed.
Along the way, the Canadian Dollar was among the more active units. It was hurt earlier by the market turmoil, and the Bank of Canada rate decision amplified selling pressure later on. In short, the central bank left rates unchanged and decreased hawkish monetary policy expectations. The BoC added that developments on trade are a “growing source of uncertainty”.
Speaking of, what seemed to alleviate much of the jitters in the markets was comments from White House Spokesman Sarah Sanders towards the end of the session. She stated that “there are potential carve outs” from Donald Trump’s tariff proposals for Mexico, Canada and other countries. Within minutes, the Canadian Dollar reversed course and stocks gained.
One of the last major developments before the session ended was that Mr. Trump was reported to sign off on the steel and aluminum tariff plans by 20:30 GMT Thursday. He plans on using Section 232 of the Trade Expansion Act of 1962 which gives the Executive Branch more power over the Legislative Branch to impose tariffs. If Congress wishes to oppose the measure, they will need a supermajority in both houses.
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IG Client Sentiment Index Chart of the Day: NZD/USD
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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.
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