The risk appetite is starting to gain momentum again. Commodity prices have resumed growth, primarily for oil, and then metals amid the decline in the news load. Markets seem to agree with the Fed's assertion that the surge in inflation is likely to be temporary and therefore should not be a cause for concern. A temporary price growth should not prompt central banks to reverse their stimulus policies.
Fed representatives such as Brainard, Bostic, Bullard simultaneously gave several comments on the temporariness of inflation, and as a result, the long-term nominal yield of the US Treasury slightly declined again.
Today, the US dollar is under slight pressure, while commodity currencies have the best prospects.
NZD/USD
The results of the RBNZ's monetary policy meeting will be published tomorrow morning. Despite the fact that the threat of a sudden tightening of conditions is low, markets assumed that the central bank will indicate a change in its position in the hawkish direction, but will do it carefully so as not to cause uncontrolled growth of the New Zealand dollar. There are several factors in favor of this scenario.
Last week, the budget for 2021 was published, and the Treasury's economic forecasts were revised upward, reflecting an improved economic outlook. The government has planned a small increase in spending, but in any case, it is assumed that debt growth will stabilize in the next 2 years, and then begin to decline. This means that there are already more than enough reserves, and further stimulus loses economic sense.
The economy is approaching full employment, which will put stronger pressure on wage growth and inflation. A strong upward impulse is expected in the next few months.
A day before the RBNZ meeting, the consensus is that the RBNZ will start raising the rate in August 2022. This is earlier than what the Fed planned, and will serve as a bullish factor for the NZD if this deadline is not revised at the end of the meeting. However, there are no grounds yet.
According to the CFTC data, the net long position of the NZD slightly fell by 67 million, that is, to 612 million, but the target price slightly slowed its growth. This is due to the morning failure in the New Zealand stock market – the NZDOW index is losing more than a percent, while the Australian and Chinese indices are growing steadily. Apparently, this is the reaction of traders to the insider before the RBNZ meeting.
Nevertheless, the trend is still expected to remain bullish. The first target is 0.7300/05, a consolidation above which will confirm the bullish scenario. If the RBNZ shows excessive caution and extinguishes the momentum, then we can expect a pullback to the area of 0.7110/30, followed by a transition to the side range.
AUD/USD
The long position of the AUD increased a little by 44 million, reporting to 234 million during the reporting week, but the target price declined. This is partly due to China taking steps to curb rising commodity prices. The National Development and Reform Commission of China (NDRC) said the government will demonstrate "zero tolerance" for monopoly behavior and stockpiling after leading metal producers were summoned to a meeting in Beijing with several government departments on Sunday.
It should also be noted that the second most important factor after commodity prices, namely consumer inflation, slows down its growth. Retail sales have been declining for the past two weeks, spending has fallen by 5% compared to the level at the beginning of the year, and there is a possibility that inflationary pressures are easing, which affects the prospects for the RBA's exit from stimulus programs.
The estimated price is near the long-term average, and there are attempts to reverse it. If the growth of commodity prices slows down, the Australian dollar has a chance to make a downward correction.
At the moment, it can be assumed that the Australian dollar will be trading sideways while waiting for a new impulse with a slight margin for growth. The main factors for the possible continuation of growth will be external reasons. The most likely scenario is a slow drift to the zone of 0.7840/70 in anticipation of new data.
