Crude Oil Rally Fizzles, AUD May Look Past RBA - Asia Market Wrap

KEY MONDAY DEVELOPMENTS – BRITISH POUND, S&P 500, CRUDE OIL, SAUDI ARABIA

The British Pound underperformed on Monday, weakened by negative Brexit headlines. This past weekend, UK International Trade Secretary Liam Fox noted that the chance of a no-deal Brexit is at 60-40 odds. Weakness in Sterling, echoing losses from last week’s less hawkish BoE interest rate announcement, offered a lift to the US Dollar as a result.

However, gains in the greenback were pared during the latter half of Monday’s trading session. This may have been due to a general pullback in US government bond yields. Those might have continued digesting last week’s mixed NFPs and ever-present trade tensions ahead of some long-term debt auctions on Wednesday and Thursday.

Meanwhile, US equities edged cautiously higher with the strongest upward momentum coming from the NASDAQ Composite. The S&P 500 rose 0.4 percent, closing at its highest since late-January. The improvement in market mood did not do much though for the sentiment-linked Australian and New Zealand Dollars. They were likely weighed down by a slightly higher US Dollar.

Crude oil prices were quite volatile. First, the sentiment-linked commodity rallied alongside the improvement in risk trends as US stocks soared. However, those gains were short lived after reports crossed the wires that Saudi Arabia sent 1m b/d of oil to the US in July. This was the most since 2017 and subsequently, crude oil pared most of its gains.

A LOOK AHEAD – RBA, RISK TRENDS

One of the highlights during Tuesday’s Asia trading session will be the RBA rate decision, but the event may pass without much fireworks. The markets are not anticipating a rate hike until at least a year out. Mixed Australian CPI and solid jobs data since the last central bank rate decision could open the door for another status quo policy announcement.

With that in mind, risk trends may be the key driver for the markets ahead. More optimism may allow Asia/Pacific benchmark indexes to trade higher. This opens the door for Yen weakness while commodity currencies like AUD or NZD rally. However, more trade tensions between the two largest economies could suddenly turn that dynamic around.

DailyFX Economic Calendar: Asia Pacific (all times in GMT)

Retail trader data shows 64.7% of AUD/USD traders are net-long with the ratio of traders long to short at 1.84 to 1. In fact, traders have remained net-long since Jun 05 when AUD/USD traded near 0.75575; price has moved 2.2% lower since then. The number of traders net-long is 2.0% higher than yesterday and 9.6% lower from last week, while the number of traders net-short is 9.5% higher than yesterday and 1.0% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUD/USD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current AUD/USD price trend may soon reverse higher despite the fact traders remain net-long.

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