Markets are stable in anticipation of the publication of the US employment report on Friday. The yield of government bonds slightly changes in the direction of growth, and stock indices in both Asian and European countries change on average within a percent. The US dollar is also strengthening, while gold is declining. There is nothing unusual.
America's consumer confidence remains at its highest levels since March 2020 but did not meet the pre-pandemic levels. The number of jobs has also not yet recovered – if the fall was by 22 million in April 2020, now, 7.6 million of them remain unrecoverable. This is quite a lot, given the unprecedented support for the economy.
It is not necessary to expect strong movements until Friday, the markets will be cautious. The US dollar is still the favorite, but the bullish mood should be supported by strong Nonfarm. If the report is weak, the national currency will start to weaken again.
AUD/USD
The RBA will hold a regular meeting on July 6. If we focus on earlier reports, the RBA will decide on adjusting the inflation targets and, accordingly, on the rate, as well as on withdrawing from the current QE program. As ANZ bank suggests, the RBA is going to start reducing QE from September. But in terms of inflation and wage targets, everything is not so obvious and there is a whole range of probabilities. For example, Australian inflation is still significantly below the target, unlike in other countries.
NAB bank assumes that the RBA will be late in its decisions compared to the Fed and the RBNZ, which means that the AUD will be weaker than USD or NZD.
Over the reporting week, the Australian dollar's net short position has slightly changed and amounts to 1.328 billion. It seems to be the most vulnerable among all commodity currencies. The calculated price is sharply inclined downwards.
A week earlier, it was assumed that the current support is 0.7410/20, which is a correction of 23.6% from the growth wave of the last year and at the same time, a local peak from August 2020. This target is still maintained. We expect a successful test of 0.7479 and further downward movement.
NZDUSD
New Zealand tightened its restrictions, which turned out to be quite surprising. Meanwhile, only 8% of the population was fully vaccinated in the country as of the end of last week and so, if the next wave of COVID-19 gains momentum, New Zealand will face serious problems.
This situation is just too out of place – the economy is gaining impulse, and the growth rate is so high that the first-rate increase is predicted (by banks actively operating in Australia and New Zealand) in February next year, which makes the NZD a clear favorite of the currency market. It is still unclear whether the coronavirus will prevent the realization of these expectations.
Meanwhile, the Monetary Policy Review is expected to be released on July 14, which will inevitably raise the estimates of the economic growth rates compared to April. At the moment, there is clearly no reason to keep the rate low, the RBNZ wanted to warm up the economy and it has achieved its goal – the housing market is very strong, household spending is growing, businesses are hiring and investing, inflation threatens to go far beyond the upper limit of the target range, inflation expectations are above the middle of the target range and are growing.
The only thing that can hinder the rate of growth is a new wave of coronavirus, but it is impossible to predict it.
According to the CFTC report, the net long position of the NZD has practically not changed and amounts to 231 million, but the negative dynamics are formed due to the growth of hedging operations in favor of USD. The estimated price is below the long-term average, and the negativity on the aggregate of indicators remains.
It can be assumed that a further decline to the support zone of 0.6700/90 is possible, but given the development of the economic situation, the New Zealand dollar will not further decline and we must look for signs for another growth. The strongest driver is still the expectation of an earlier rate hike.
