Asia AM Digest: US Dollar Rises After Drop on FOMC, Yen May Gain
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Current Market Developments – US Dollar Climbs After FOMC
The US Dollar took a sharp dive on the FOMC monetary policy announcement. There, the Fed upgraded its view on inflation but not so much on economic growth. Overall, the central bank seemed to prepare the markets for a rate hike at its next meeting where we will also get the next Summary of Economic Projections.
Interestingly, shortly after the rate decision crossed the wires, the US Dollar was quick to rebound and finished the day cautiously higher. Its appreciation was accompanied with a steepening yield curve. Indeed, the spread between 5-year and 30-year government bond yields widened to the highest since April 27. Perhaps the markets were more forward looking, anticipating gradual tightening in the future.
Prospects of higher yields from safer Treasuries sap the appeal of riskier assets such as stocks, Wall Street ended the day largely in the red. The S&P 500 declined more than 0.7%. Even though sentiment-linked currencies like the Australian and New Zealand Dollars initially rallied on the FOMC announcement, those gains quickly vanished in the aftermath.
A Look Ahead – Yen May Gain, Malaysian Ringgit Could Fall
Keep a close eye for how Asian stocks react to the aftermath of the FOMC. If they echo declines seen on Wall Street, then the anti-risk Japanese Yen could see some gains. Meanwhile, sentiment-linked ASEAN bloc currencies like the Malaysian Ringgit and Philippine Peso could fall alongside benchmark indexes.
We will also get Australia’s March trade balance report. The surplus is expected to increase. Data out of the country has been tending to outperform as of late. More of the same here may offer a slight boost to the Australian Dollar.
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Prior Session Recap – Crude Oil Brushes Aside Inventory Gains
The Euro showed a tepid reaction as growth in the Euro-Area moderated in the first quarter from 2.5% to 2.7%. Meanwhile, crude oil prices brushed off official EIA data that showed inventories unexpectedly rose by 6.218 million as opposed to 840.5k seen. The commodity rose instead on the Fed rate announcement.
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IG Client Sentiment Index Chart of the Day: NZD/USD
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Retail trader data shows 59.3% of NZD/USD traders are net-long with the ratio of traders long to short at 1.46 to 1. In fact, traders have remained net-long since Apr 22 when NZD/USD traded near 0.71535; price has moved 2.1% lower since then. The number of traders net-long is 4.7% lower than yesterday and 18.2% higher from last week, while the number of traders net-short is 6.3% lower than yesterday and 9.2% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests NZD/USD 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 NZD/USD-bearish contrarian trading bias.
Five Things Traders are Reading:
- US Dollar Index Forecast: DXY Jumps As FOMC Allows Inflation Breakout by Tyler Yell, CMT, Forex Trading Instructor
- US Dollar Drops as FOMC Turns Hawkish on Inflation, Dovish on Growth by Christopher Vecchio, Senior Currency Strategist
- S&P Price Might Dip Lower on Sentiment by Dylan Jusino, DailyFX Research
- USD/JPY Rate Forecast: Above 110 May Paint Picture Of Things To Comeby Tyler Yell, CMT, Forex Trading Instructor
- FOMC Preview: Same Old Forward-Guidance to Tame EUR/USD Weaknessby David Song, Currency Analyst
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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.