Asia AM Digest: NZD Faces Jobs Report, AUD Looks to Caixin PMI

2018-05-01 22:30:00

Daniel Dubrovsky, Contributing Senior Strategist

What's on this page

A Look Ahead – NZ Jobs and Caixin Manufacturing PMI
Current Market Developments – BOC’s Poloz Boosts the Canadian Dollar
Prior Session Recap – USD Higher Still
Five Things Traders are Reading:

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A Look Ahead – NZ Jobs and Caixin Manufacturing PMI

New Zealand’s first quarter jobs report will cross the wires early into Wednesday’s Asian trading session. The unemployment rate is expected to tick down to 4.4% from 4.5%. Meanwhile, average hour earnings are also estimated to decrease to +0.5% q/q from +0.8%. The markets aren’t anticipating an RBNZ rate hike by the end of this year, overnight index swaps place that probability at just 26.8%.

Then, we will get April’s Chinese Caixin Manufacturing PMI print for April. Growth in this sector is expected to tick down slightly. Data out of the world’s second largest economy has been increasingly been deteriorating relative to economists’ expectations as of late. More of the same may bode ill for not just the Australian Dollar, but also some ASEAN bloc currencies like the Singapore Dollar and Indonesian Rupiah.

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Current Market Developments – BOC’s Poloz Boosts the Canadian Dollar

Bank of Canada’s Governor Stephen Poloz gave a speech towards the end of the day which further boosted their currency. The Canadian Dollar rose as Mr. Poloz said that the central bank is becoming more confident that less stimulus is needed over time. He added that the outlook for inflation is good in spite of household debt.

US trade representative Robert Lighthizer said that he was aiming for a NAFTA deal in May. He is set to meet with officials from Mexico and Canada on Monday. Mr. Lighthizer added that “we will see if we can get a good agreement”.

Prior Session Recap – USD Higher Still

The US Dollar kept climbing to its highest level since January 11th, rising alongside local front-end government bond yields ahead of Wednesday’s FOMC monetary policy announcement. Meanwhile, the British Pound depreciated as UK Manufacturing PMI missed expectations. This further dented the probability that the Bank of England may raise rates this month.

The Canadian Dollar appreciated against its major counterparts on a better-than-expected local GDP report. Local bond yields also rose here, signaling firming hawkish Bank of Canada rate hike expectations. Sentiment-linked currencies like the New Zealand and Australian Dollars put in a last minute recovery towards the end of the day as US stocks rebounded.

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IG Client Sentiment Index Chart of the Day: USDJPY

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Retail trader data shows 55.0% of USD/JPY traders are net-long with the ratio of traders long to short at 1.22 to 1. In fact, traders have remained net-long since Dec 29 when USD/JPY traded near 113.202; price has moved 3.1% lower since then. The number of traders net-long is 0.6% lower than yesterday and 5.1% lower from last week, while the number of traders net-short is 0.5% lower than yesterday and 4.8% 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. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current USD/JPY price trend may soon reverse higher despite the fact traders remain net-long.