Asia AM Digest: USD Tumbles After Fed Hike, NZD Unhurt By RBNZ

2018-03-21 23:30:00

Research, Research Team

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The US Dollar depreciated on Wednesday, and it was largely thanks to the Fed monetary policy announcement and the news conference with Chair Jerome Powell. There, the central bank raised rates to a range of 1.50 - 1.75% as expected. However, what seemed to disappoint the markets was that the near-term policy outlook did not make room for a fourth hike.

Earlier in the day, the Canadian Dollar gained on news that the Trump administration is planning to drop a condition for vehicle imports from Canada and Mexico. Discussed during last week’s NAFTA meeting, the US agreed to let go of the requirement that auto exports from those two countries must contain at least 50% US content.

Just about halfway into Wednesday’s session, the anti-risk Japanese Yen gained while stocks fell when China was reported planning countermeasures against US tariffs. The British Pound also outperformed, helped by a strong local employment report. There, the UK added twice the amount of jobs than expected at +168,000 in January.

Finally, towards the end of the trading day, the New Zealand Dollar held its ground despite the RBNZ hinting that a rate hike by 2019 is unlikely. There, the markets appeared to still be digesting the aftermath of the FOMC meeting. With that in mind, NZD/USD’s downtrend still remains intact.

Looking ahead, DailyFX Analyst David Cottle will begin covering Thursday’s Australian jobs report which is due soon at 00:15 GMT. Join the session here to find out how the data impacts the Australian Dollar in the near-term and medium-term.

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

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Retail trader data shows 73.9% of USD/JPY traders are net-long with the ratio of traders long to short at 2.82 to 1. In fact, traders have remained net-long since Dec 29 when USD/JPY traded near 112.39; price has moved 5.4% lower since then. The number of traders net-long is 3.3% higher than yesterday and 6.0% higher from last week, while the number of traders net-short is 1.7% lower than yesterday and 8.9% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/JPY prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USD/JPY-bearish contrarian trading bias.