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Asia AM Digest: CAD & GBP Tumble, NZD/USD Support Faces Local CPI

Asia AM Digest: CAD & GBP Tumble, NZD/USD Support Faces Local CPI

Daniel Dubrovsky, Strategist

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The Canadian Dollar and British Pound were the two worst performing majors on Wednesday. The former was hurt by this month’s Bank of Canada rate decision where near-term hawkish monetary policy bets declined. It then fell some more when BOC’s Governor Stephen Poloz spoke afterwards and added that the pace of rate hikes is a considerable question mark.

Sterling suffered when a worse-than-expected UK CPI report crossed the wires ahead of a BoE rate decision where markets are envisioning a hike. There, the pace of headline and core inflation declined to their slowest since March 2017. Local bond yields tumbled, also signaling ebbing Bank of England rate hike expectations.

The US Dollar was quick to take advantage of losses in the British Pound, appreciating during the first half of the day. However, the greenback gave up some of its gains during the second half when the S&P 500fell sharply before and after market open. This occurred as US President Donald Trump tweeted that he “doesn’t like the deal for the US”, downplaying hopes that the country may rejoin the TPP.

Similar to what we saw yesterday, the sentiment-linked Australian and New Zealand Dollars climbed as the greenback fell. This was despite an overall decline in risk trends as stocks tumbled. Speaking of the latter currency, NZD/USD faces New Zealand’s first quarter CPI report early into Thursday’s session. The pair declined as expected leading into the release, and near-term options-derived support seemed to have caught it as it fell.

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

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Retail trader data shows 47.9% of AUD/USD traders are net-long with the ratio of traders short to long at 1.09 to 1. The number of traders net-long is 12.4% lower than yesterday and 6.2% lower from last week, while the number of traders net-short is 2.7% higher than yesterday and 1.2% higher 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. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger AUD/USD-bullish contrarian trading bias.

Five Things Traders are Reading:

  1. Crude Oil Price Forecast: A Leg Higher On Shrinking US Stockpiles by Tyler Yell, CMT, Forex Trading Instructor
  2. S&P 500 May Trade Higher on Sentiment by Dylan Jusino, DailyFX Research
  3. Canadian Dollar Rate Forecast: BoC gets Bullish on Economy, Holds Rates by Tyler Yell, CMT, Forex Trading Instructor
  4. AUD/USD Price Outlook: Reversal Testing Initial Resistance Hurdles by Michael Boutros, Currency Strategist
  5. GBP/USD Pulls Back on Inflation Miss, S&P 500 Rallies to Fresh April Highs by James Stanley, Currency Strategist

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--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

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

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