Asia AM Digest: Metal Tariffs Dwarf Italy News, Risk Trends Eyed

CURRENT MARKET DEVELOPMENTS – US METAL TARIFFS REVIVE TRADE WAR FEARS, CAD DOWN

The relief in sentiment from the markets on Wednesday did not last long as the Trump administration confirmed that the US will move on with imposing metal tariffs on the EU, Mexico and Canada. Not surprisingly, this development sent stocks lower on Wall Street and in Europe with the S&P 500 down 0.69% and the DAX lower 1.40%.

Of all the FX majors, the Canadian Dollar unperformed the most as the tariffs placed more uncertainty on the still ongoing NAFTA negotiations. It also didn’t help that Canada’s annualized first quarter GDP reading significantly missed expectations, coming in at 1.3% instead of 1.8%. Needless to say, hawkish Bank of Canada monetary policy expectations faded as local bond yields tumbled.

Updates from Italy that an election is now basically off the table only sent the Euro just cautiously higher as the markets were more focused on trade war fears. Prime Minister designate Giuseppe Conte accepted an offer to form a new government with the Eurosceptic Savona named the new European Affairs Minister. The anti-risk Swiss Francoutpaced the similar-behaving Japanese Yen in terms of gains for the day.

A LOOK AHEAD – ALL EYES ON RISK TRENDS: YEN, AUSSIE AND STOCKS

A lack of key economic data releases during the Asian session will open the door to risk trends remaining the prominent catalyst for the markets. If shares in Japan, China and Australia echo the losses from the US and European session, then the Japanese Yen could gain at the expense of the sentiment-linked Australian and New Zealand Dollars.

In addition, keep an eye out for retaliatory measures on the US metal tariffs. We already heard concerns from French President Emmanuel Macron, Canada’s Prime Minister Justin Trudeau and European Commission President Jean-Claude Juncker. In addition, do note how central bankers comment on the external environment. Any hesitation to commit to tightening (Fed, ECB, BOC, BOE) amidst brewing geopolitical tensions stands to bode ill for their respective currencies (USD, EUR, CAD, GBP).

 Asia Pacific (all times in GMT)

 Chart of the Day: NZD/USD

Retail trader data shows 72.3% of NZD/USD traders are net-long with the ratio of traders long to short at 2.61 to 1. In fact, traders have remained net-long since Apr 22 when NZD/USD traded near 0.73277; price has moved 4.5% lower since then. The number of traders net-long is 7.8% higher than yesterday and 12.1% lower from last week, while the number of traders net-short is 6.7% higher than yesterday and 15.9% 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.

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