Traders' activity remains low in anticipation of the publication of the US employment report on Friday. The stock indices continued to rise, yields slightly declined, and the US dollar is weakening amid a noticeable increase in demand for risk.
The labor market report will have a key impact on the Fed's position. Another strong report will increase the chances that the upcoming reduction in QE will be announced at the meeting in September. Weaker data is highly likely to postpone this event to November or December.
It can be assumed that the current trends will generally continue until Friday, which means that commodity currencies will be in high demand. At the same time, the pullback is unlikely to develop into a long-term trend, as speculators in the futures continue to build up their long dollar position.
NZD/USD
The RBNZ business optimism index declined from -3.8 p to -14.2 p in August. The activity forecast was also worsened but is unlikely to affect the RBNZ's plans to normalize monetary policy, and there are a number of reasons for this.
First, the reduction of activity by the Central Bank was assumed in advance. There are objective reasons for this, related to some newly introduced anti-covid restrictions. Second, inflation expectations have risen above the target range for the first time since 2011, showing 3.05%, which means that business does not see a direct connection between restrictions and consumer activity. And lastly, the RBNZ expects a rapid recovery of activity as soon as restrictions are lifted due to the approach of the summer period.
The forecasts for the RBNZ rate remain optimistic. Many expected that the rate would be raised in August, but RBNZ took a short break and will most likely be the first to enter the normalization cycle. Government bond yields are growing faster than those of the other G10 countries, which also indicates investor confidence in the RBNZ's speedy actions.
The CFTC report for the New Zealand dollar is neutral again. The net-short position is close to zero, but it generally looks much more promising than the Australian dollar. The target price is being held above the long-term average, which gives reason to expect continued growth.
The NZD/USD pair is growing steadily on Tuesday morning, moving towards a clear target – the upper border of the descending channel. The resistance zone is at the border of the channel 0.7110/30, and there is a good chance that the NZD will reach it in the coming days. The next move will depend on the global trend in the demand for risk. In any case, the probability of an upward exit from the channel is quite high.
AUD/USD
The Australian economy continues to experience strong pressure due to the restrictions imposed a few months ago. ANZ Bank forecasts that GDP growth in Q2 will be only 0.1%, and it is expected to fall by 3% in Q3, due to a sharp decline in consumption, business investment, and housing construction. At the same time, the approach of summer gives hope for the early lifting of restrictions and a sharp economic recovery.
Some deterioration in the activity has led to increased pressure on the Australian dollar, which generally looks worse than most commodity currencies. The plans to normalize policy are also fading. It is expected that the first rate increase will occur no earlier than the beginning of 2024, that is, the RBA will lag behind most central banks.
The CFTC report for the AUD is negative. The net-short position has grown again, this time to -4.108 billion, this is the maximum short position among the G7 currencies after the yen. The settlement price continues to stay below the long-term average, and the Australian dollar is still under pressure.
Amid the general demand for risk, the Australian dollar continues the upward correction and has already tried to break through the resistance zone of 0.7290/7320. If the market keeps demand for risk in the coming days, then the corrective growth will continue. The next target is the middle of the 0.7430/50 descending channel. At the same time, it can be assumed that the AUD is in a downward channel, and an upward exit from it is unlikely.
