A Look Ahead – Can Australia Jobs Report Offer Lasting AUD Response?
The Australian Dollar will look to April’s local jobs report during Thursday’s Asia trading session. However, follow through potential could be lacking if the data does not significantly alter RBA monetary policy expectations. This could be the case given that the central bank has reiterated earlier this week that they don’t see a strong case for a near-term policy adjustment from their meeting minutes.
Take the example of yesterday’s local wage price data which can be seen below on our economic calendar. There, a mixed outcome where yearly growth was in line with expectations while quarterly performance fell short sent AUD/USD more than 0.36% lower in the aftermath. The Reserve Bank of Australia envisions a lift in wages over time and the markets seemed to have expected no less.
DailyFX Economic Calendar (all times in GMT)
Despite its losses, the Aussie Dollar rose in the aftermath alongside both the Nikkei 225 and S&P 500. With that in mind, the sentiment-linked currency appears to be more interested in risk trends. On this front, ongoing developments on US/China trade talks, Italian government formation and Fed speak towards the end of the week could be notable catalysts for sentiment.
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Current Market Developments – GBP Higher on Brexit Update
The British Pound is cautiously higher against its major counterparts during the beginning hours of Thursday’s FX trading session. A report from The Telegraph revealed that the UK is said to tell the EU that it is prepared to stay in the customs union well beyond 2021. A key issue surrounding Brexit negotiations is a solution to avoid a hard border between the Republic of Ireland (EU member state) and Northern Ireland (part of UK). The report said that the country will put forward a new “backstop” to avoid a hard border.
Prior Session Recap – Sentiment Rebounds and USD Losses Gains
After the US Dollar rose to a session high during the first half of the day, the greenback came tumbling back down to finish the day little changed. However, it was sharply lower against commodity currencies like the Canadian, Australian and New Zealand Dollars. All of which were the best performing majors during Wednesday’s session and rose at the expense of the greenback.
A pickup in stocks during the second half of the day sent those sentiment-linked currencies higher. The timing of these gains aligned with the release of US industrial production which beat estimates. Simultaneously, the S&P 500 rose as well as other benchmark indexes like the Nikkei 225. Perhaps encouraging signs that the US economy can remain resilient despite a rise in borrowing costs encouraged hopes and brightened the mood
One currency that underperformed across the board was the Euro which was weighed down by political risk. The drop occurred amidst a widening spread between German and Italian 10-year bond yields which reflects a rising risk premium in lending to Italy. Markets were unnerved as the country’s leading anti-establishment parties continued talks as they try to form a government. One of their demands may include that the ECB cancels EUR250b of Italian debt.
DailyFX Economic Calendar: Asia Pacific (all times in GMT)
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IG Client Sentiment Index Chart of the Day: NZD/USD
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Retail trader data shows 67.9% of NZD/USD traders are net-long with the ratio of traders long to short at 2.12 to 1. In fact, traders have remained net-long since Apr 22 when NZD/USD traded near 0.72044; price has moved 4.2% lower since then. The number of traders net-long is 1.0% lower than yesterday and 21.9% higher from last week, while the number of traders net-short is 18.3% lower than yesterday and 16.9% 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 China Trade War & a Brief History of Trade Wars – 1900 until Present by the DailyFX Team
- EUR/USD Weakness to Persist as RSI Slips Back Into Oversold Territory by David Song, Currency Analyst
- Crude Oil Price Forecast: Saudi America in Play as US Exports Swellby Tyler Yell, Forex Trading Instructor
- NZD/USD Retains Bearish Series Ahead of PPI, 2018 Budget Statementby David Song, Currency Analyst
- Canadian Dollar Rate Forecast: CAD Jumps Above 50-Day Moving Averageby Tyler Yell, Forex Trading Instructor
--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter