Asia AM Digest: CAD Rises With Crude Oil Prices, Stocks May Gain

Current Developments – CAD Rises With Crude Oil Prices

The Canadian Dollar was the best performing major on Thursday, boosted by comments from BoC’s Governor Stephen Poloz and a rise in crude oil prices. Amidst the risk of trade wars and their expected adverse impact on investment decisions, Mr. Poloz said that the economy still warrants higher rates. Canadian local government bond yields rose, signaling firming hawkish BoC rate hike bets.

There was a rise in stocks on Wall Street following comments from White House Trade Adviser Peter Navarro. He said that US President Donald Trump has made it clear that he is a free-trader and that he wants to level the playing field. The US Dollar had a rather mixed session as Atlanta’s Fed President Raphael Bostic said that he is comfortable with slowing the pace of rate hikes amidst concerns on trade wars.

Despite a gain in stocks during the US session, the sentiment-linked New Zealand Dollar remained subdued and underperformed. Local bond yields were also lower following the RBNZ monetary policy announcement where the central bank left the door open to a rate cut as their next move. The Euro on the other hand outperformed despite German inflation easing slightly.

A Look Ahead – Asian Share May Follow US Gains, Hurt JPY

In terms of economic data during the Asia session, we will get May’s Japan jobless rate. However, that will likely offer a minimal reaction in the Japanese Yen given its limited implications for monetary policy. The central bank is focused on bringing inflation up to a sustainable 2 percent price target and unemployment has already been running remarkably low for some time.

Rather, the focus for the anti-risk Yen will be sentiment. If Asian shares echo gains from the US session, then the Yen could suffer. Meanwhile, the sentiment-linked Australian and New Zealand Dollars could rise. For the former, local private sector credit data may offer some short-term volatility. Aside from that, keep an eye on updates in regards to the global trade front.

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

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Retail trader data shows 48.9% of USD/JPY traders are net-long with the ratio of traders short to long at 1.04 to 1. The number of traders net-long is 1.6% lower than yesterday and 3.5% lower from last week, while the number of traders net-short is 8.1% higher than yesterday and 1.6% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/JPY 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 USD/JPY-bullish contrarian trading bias.

Five Things Traders are Reading:

  1. USD/CAD Rate Forecast: BoC Stirs Expectations But Trend Looks Firm by Tyler Yell, Forex Trading Instructor
  2. US Dollar Price Action Setups: Q3 Preview by James Stanley, Currency Strategist
  3. NZD/USD Extends Bearish Series, RSI Dips Into Oversold Territory by David Song, Currency Analyst
  4. US Dollar Closing Strong Quarter Leaves USD Bears in Doubtby Tyler Yell, Forex Trading Instructor
  5. USD/CAD Price Analysis: Canadian Dollar on the Offensiveby Michael Boutros, Currency Strategist

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

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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