On Monday, the US markets were closed due to the celebration of Labor Day, so volatility was generally low. The US dollar slightly recouped the losses that occurred after the publication of the US employment report last Friday, and since the Australian dollar and the New Zealand dollar have been the two biggest beneficiaries of the US dollar's decline recently, it is not surprising that they lost slightly more than most other currencies.
Nevertheless, optimism still prevails. A new record was updated for the Eurostoxx 50, and strong growth of the Nikkei and Shanghai CSI 300 indices was also noted. We expect that the sluggish growth in demand for risk will continue today, but it is more likely that trading will go in a narrow range for most instruments.
NZD/USD
It is believed that the RBNZ was forced to postpone the start of the rate increase cycle due to the COVID-19 outbreak. The latest data is optimistic, the daily statistics on cases look like the virus has reached its high, so this factor may be ceasing its influence. Other parameters, primarily macroeconomic, are in favor of a rapid economic recovery.
The international trade data released by Stats NZ last week showed how rising global demand for commodities supported the New Zealand economy, with terms of trade increasing 3.3% q/q. The construction sector does not show any signs of slowing down yet. The demand is very high.
The forecast of banks operating in New Zealand is as follows – the RBNZ will raise the rate by 0.25% at the meeting on October 6.
The CFTC report did not show any movement again in the New Zealand dollar. The changes are insignificant, but the dynamics of bonds is quite indicative. And while the known problems with the US economy held back the growth of UST yields (in two weeks the yield rose from 1.29% to 1.33%), the yields of similar New Zealand 10-years rose from 1.65% to 1.93%. As a result, the target price surged.
In practice, this means that the market is confident that the RBNZ's pause on the rate will be temporary, and we will see a rate increase at the next meeting, which cannot be said about the Fed.
We will once again repeat the thesis about the undervaluation of NZD. This currency has confidently reached the upper limit of the channel 0.7110/30, which we assumed a week earlier. From a technical point of view, a downward pullback to the middle of the channel is possible, approximately 0.6840/40, but it is more likely that the bulls will attempt to consolidate above the channel border after a short correction and reach the previous local high of 0.73313.
AUD/USD
The RBA left the main parameters of monetary policy unchanged during the meeting this morning, with one exception – the pace of weekly purchases was actively reduced from 5 to 4 billion, as expected. The text of the accompanying statement is relatively dovish. It is emphasized that the main reason why the RBA cannot begin to normalize monetary policy is the outbreak of COVID-19, which is actually not news – everyone somehow refers to the delta strain as the main reason for the slowdown in normalization.
Optimism is good, but the latest data on the PMI in the services sector from the AiG group show a significant slowdown in the sector. The index declined from 51.7 p to 45.6 p in September.
The CFTC report for the Australian dollar is moderately negative. The target price cannot go above the long-term average in any way, despite the good external conditions.
In general, the Australian dollar still looks weaker than New Zealand one, so the AUD/NZD cross-pair is still under bearish impulse. The AUD/USD pair, in turn, surged to the resistance zone of 0.7430/50, but there are not enough bases for the development of the bullish momentum.
Today, the demand for risky assets remains moderate, so any attempt to rise a little higher to the resistance zone 0.7550/60 is not excluded. However, the danger of renewed sales at any time remains high. It can be assumed that the most probable scenario is the continuation of a decline with a test of the recent low of 0.7108.
