Asia Pacific Market Open Talking Points
- Currencies and equities diverged today from a sentiment perspective
- S&P 500 hits record high, US Dollar rose despite more Fed rate cut bets
- AUD/USD drops to rising channel support, may rise on Australian CPI
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FX News Tuesday
The highly liquid US Dollar and anti-risk Japanese Yen were the best-performing majors on Tuesday. These currencies can do well during times of market pessimism, yet the S&P 500 closed at a record high as it rose over 0.8% in its best day in over three weeks. Better-than-expected earnings reports sent shares from Twitter (+15.71%), Lockheed Martin (+5.66%) and Hasbro (+14.23%) rallying.
However, US front-end government bond yields fell and fed funds futures showed an increase in dovish Fed monetary policy expectations. Meanwhile, the sentiment-linked Australian, Canadian and New Zealand Dollars weakened. Ahead of the Bank of Canada rate decision later in the day, trader position hints of a bearish bias in USD/CAD.
Want to learn more about how sentiment readings may drive the Canadian Dollar? Tune in today at 00:00 GMT for a livesession as I cover how sentiment can be used to identify prevailing market trends!
Taking a closer look at this trading dynamic also reveals that there was a sharp depreciation in the British Pound in the lead-up to the Wall Street market open on the chart below. Around that time, a report from the National Post showed that UK Prime Minister Theresa May was facing increased pressure to depart, creating greater uncertainty over who would replace her with Brexit delayed until October 31.
Divergence Between Fed Rate Cut Bets and Wall Street
Chart Created in TradingView
Wednesday’s Asia Pacific Trading Session
The Australian Dollar will be awaiting local first quarter inflation data where CPI is expected to slow to 1.5% y/y from 1.8% in the fourth quarter of 2018. Lately, Australian economic news flow has been tending to outperform relative to economists’ expectations. This suggests that the health and vigor of the economy may be understated. As such, this may lead to an upside surprise and bolster the Aussie.
Another development that may boost the pro-risk AUD and NZD is if Asia Pacific equities echo the rosy performance on Wall Street. But that seems unclear at this moment given the diverging performance between equities and FX from a sentiment perspective over the past 24 hours. S&P 500 futures are flat at the time of this writing heading into Tokyo Stock Exchange open.
AUD/USD Technical Analysis
So far this week, AUD/USD has spent most of its times falling towards rising channel support as anticipated. Now, it sits right on the floor as the former descending resistance line from January (blue-dashed line below) caught the wick. As such, AUD/USD is in a good position to rebound towards resistance in the event of a supportive inflation report that may cool RBA rate cut bets.
AUD/USD Daily Chart
Chart Created in TradingView
FX Trading Resources
— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter