Stock markets are mostly trading in the "green" zone this morning, wherein a clear demand for risky assets are observed. The market reacted that way due to Mr. Trump's series of tweets last night. He made it clear that he is starting the process of handing over power to Mr. Biden.
Following his messages, the previous US president still doesn't want to give up, but apparently, the fight will be difficult since the prospects for judicial decisions regarding large-scale election fraud are very long-term prospects, and may drag on for many months.
Biden, in turn, surprised the markets even more by appointing former Fed Chairman Janette Yellen to the post of US Treasury Secretary, who resigned for health reasons. There is no doubt that close cooperation between the Fed and the Treasury is expected, which will most likely contribute to the growth of liquidity and the weakening of the USD.
However, it is still unclear how stable the current positivity is. The USD/JPY pair, which is the main indicator of demand for risk, hardly reacted. So, demand for risky assets is more likely today.
Back in August, investors assumed that the RBNZ was implementing the stimulus program announced in the spring, which will also include a rate cut to -0.25% in April 2021.
Now, the expectations have changed significantly. A decline to -0.25% is the most pessimistic scenario under consideration, and the base option is when the rate will be reduced to 0.1% in May and then to -0.25% but not earlier than August. This is the most likely scenario that ANZ Bank offers when analyzing the latest changes in the New Zealand economy.
It is clear that the New Zealand dollar received a clear bullish signal from a change in the scenario, since the dynamics of the yield spread will not change in favor of the US dollar.
Another factor that adds optimism is the beginning of the procedure for transferring power to Biden, which is regarded by markets as a bearish factor for the dollar, and so we can expect the NZD to continue rising in the coming weeks.
There are also small changes in the CFTC report, which are in favor of the New Zealand dollar. The cumulative long position is up 84m to 611m. The estimated fair price is inclined upwards and we have a bullish trend.
Based on the set of parameters, we can assume that the NZD/USD pair will continue to grow. At the moment, the pair is trading near the previous high of 0.6960. A daily close above this level will mean an increase in bullish impulse, while the goal will shift to 0.7146 – a 50% return from the decline of the last 6 years.
The Australian dollar finally showed its upward trend. First, the macroeconomic indicators are improving – in October, export and import volumes increased significantly (by 6 and 8%), the PMI in both the service sector and the manufacturing sector also showed growth in November above forecasts. Moreover, the net short position on AUD declined by 188 million, which led to an increase in demand for Australian assets and currency. The estimated fair price turned up, therefore, a downward momentum will be unlikely.
The economic conflict between Australia and China is somewhat negative. In turn, the Trump administration insists on new tough measures against China, but a change in administration could lead to a resolution of the conflict, which will be beneficial on the prospects for the Australian dollar.
Technically, it is very likely to reach the resistance level of 0.7416. We consider the resistance zone 0.7630/40 as the goal, if the process of transfer of power in the US goes smoothly, and COVID-19 does not cover Australia, although this looks unlikely, since summer is coming in the southern hemisphere and seasonal viral activity is declining.