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Asia AM Digest: USD Rises with Hawkish Fed Bets, Yen Faces CPI

Asia AM Digest: USD Rises with Hawkish Fed Bets, Yen Faces CPI

Daniel Dubrovsky, Strategist

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The British Pound continued its decline from yesterday, where a softer UK CPI report weakened near-term BoE rate hike expectations. On Thursday, Sterling slipped initially on softer local retail sales data. However, its decline paled in comparison to its sharp drop towards the end of the day.

There, Bank of England’s Governor Mark Carney further downplayed expectations of a rate hike at their next decision in May. While he said that one is likely this year, he highlighted the aforementioned “mixed” data and reminded us that there are other meetings over the course of this year.

Meanwhile, the US Dollar was the best performing major, rising alongside local longer-dated bond yields. The 10-year rate climbed to 2.9%, approaching mid-February highs. A couple of catalysts behind these moves could have been the Philadelphia Fed Business Outlook Survey and a speech from Lael Brainard. In the former, there were higher price expectations. During the latter, Brainard said that “we cannot afford to be complacent”. She was referencing a solid jobs market, improved household balance sheets and business activity.

Stocks on Wall Street didn’t perform so well, the S&P 500 declined almost 0.6%. A slump in the technological sector weighed on benchmark indexes. Higher hawkish Fed bets probably didn’t help the case either. Not surprisingly, the sentiment-linked Australian and New Zealand Dollars declined while the anti-risk Japanese Yen appreciated.

Looking ahead, Japan’s March national CPI data will cross the wires shortly before Tokyo comes online. Expectations are for slight disinflation in the country. Data out of the country has been underperforming as of late. This opens the door to a downside surprise. Japanese inflation has been slowly heading towards the Bank of Japan’s price target. Even so, Kuroda has reminded us that it’s too early to talk about a policy exit strategy. With that in mind, there may be a chance that the data passes by without much notice.

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Asia AM Digest: USD Rises with Hawkish Fed Bets, Yen Faces CPI

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Asia AM Digest: USD Rises with Hawkish Fed Bets, Yen Faces CPIAsia AM Digest: USD Rises with Hawkish Fed Bets, Yen Faces CPIAsia AM Digest: USD Rises with Hawkish Fed Bets, Yen Faces CPI

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

Asia AM Digest: USD Rises with Hawkish Fed Bets, Yen Faces CPI

CLICK HERE to learn more about the IG Client Sentiment Index

Retail trader data shows 32.3% of traders are net-long with the ratio of traders short to long at 2.09 to 1. In fact, traders have remained net-short since Mar 20 when NZD/USD traded near 0.7227; price has moved 1.1% higher since then. The percentage of traders net-long is now its highest since Apr 10 when NZD/USD traded near 0.73681. The number of traders net-long is 12.3% higher than yesterday and 3.9% lower from last week, while the number of traders net-short is 11.2% lower than yesterday and 9.7% 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. FX Factors to Watch: Central Banks Should Be Careful What They Wish For by Tyler Yell, CMT, Forex Trading Instructor
  2. USD, JPY Price Action Setups Ahead of Japanese Inflation by James Stanley, Currency Strategist
  3. Cable Trades with Mixed Bias by Dylan Jusino, DailyFX Research
  4. Central Bank Weekly: GBP Steadies as Odds of May BOE Hike Remain Elevatedby Christopher Vecchio, Sr. Currency Strategist
  5. USD/JPY Rate Forecast: Macro Forces May Push Yen Lowerby Tyler Yell, CMT, Forex Trading Instructor

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

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