The Organization for Economic Cooperation and Development (OECD) has sharply raised its forecast for global economic growth. According to them, the most promising is the United States, whose 2021 forecast has been increased from 3.2% to 6.5%. This growth will be based on a new fiscal stimulus package and high vaccination rates.
The OECD forecasts generally coincide with the IMF forecasts published earlier and are a strong bullish factor for both the commodity market and commodity currencies. The situation for the US dollar also looks quite bullish. Therefore, we can expect it to significantly strengthen, primarily against the yen and the euro on Friday.
NZD/USD
During the previous week, the prospect for the New Zealand dollar has slightly worsened. The government tightened its quarantine measures again, which caused the domestic mood to fall. Here, March's RBNZ business optimism index plummeted to zero against +7 a month earlier. The activity forecast was lowered as well.
At the same time, global prices for commodity export are rising, with GlobalDairyTrade reporting that the price of milk has increased by 21%. The housing prices are also rapidly moving up.
The Food Price Index will be released this evening to provide a clearer picture of New Zealand's inflation outlook.
The January financial statements of New Zealand recommend a reduction on bond issuance, with tax revenues exceeding the forecast by $ 1.8 billion and spending less by $ 0.5 billion, reflecting a faster economic recovery. These expectations emphasize that NZD's recent growth has been justified. However, the government, facing the threat of a new wave of COVID-19 in the upcoming autumn-winter period, is not willing to monitor the growth of the national currency and will take measures to stabilize the exchange rate.
The New Zealand dollar remains bullish. According to the CFTC, the net long position continues to slowly rise, reaching 1.196 billion. In addition, the dynamics of the 10-year NZGB yields looks convincing and pushes up the NZD, except that the stock market is lagging behind, which may indicate the beginning of profit taking.
Looking at the current situation, the growth of NZD was justified. However, if the prices of dairy and housing become too strong, then a risk that the RBNZ will tighten measures ahead of schedule can be expected. In general, there will most likely be a bearish reversal. We can note two relevant support levels: 0.7087 and 0.6997. The breakdown of these levels may result in a further decline.
It is suggested to buy on a fall only with a short stop just below the indicated supports. Selling, in turn, looks more reasonable when the supports are broken with a medium-term target of 0.6800.
AUD/USD
The Australian dollar remains bullish, supported by several fairly strong factors.
The sharp revision of the OECD forecasts has not spared Australia. Its growth is expected to be 4.5% against the previous 3.2%, which is slightly worse than forecasts for the US and the UK, but better than Europe. The NAB business survey showed that business conditions and confidence sharply rose in February – conditions rose from +9 (long-term average 5) to +15, while confidence also did from +12 (long-term average also 5) to +16. Capacity utilization, which correlates with a lower unemployment rate, also gained 81.8% from 81.1% and is at its highest level since August 2019.
Underemployment has plunged to pre-pandemic levels, which are now at 8.1% (lowest since Feb 2019), compared to the peak of 13.8% during the height of the recession. The reduction in underemployment is seen as a success of the government's program to support the economy and significantly reduces the risk of weak wage growth.
A net long position has been formed in the futures market, with the settlement price still pointing up and above the long-term average.
The most likely scenario is the end of correction, followed by an attempt to rise again. The support is 0.6720/40 and stop is just below this level. The target is to move above the zone of 0.7820/40, which will strengthen the bullish mood.
