Stock indices closed in the positive zone on Monday, the S&P 500 has updated its historic record again, reaching 3432p, and the Asia-Pacific exchanges are mainly growing after the US markets on Tuesday morning. The rising optimism is caused by the statements of the United States and China that the trade representatives of both countries have finally held constructive negotiations and are closer to finishing up an economic deal.
The positive information about the approaching results for the creation of vaccines against coronavirus is another reason for the market's growth. Oddly enough, the market is impressed by expectations, while the creation of an active vaccine by Russia didn't have such an impact, since it doesn't consider the interests of global pharmaceutical companies.
A little positivity contributes to the growth of demand for risky assets, but the simultaneous increase in demand for the dollar will not allow commodity currencies to resume growth.
NZD/USD
Credit card spending in New Zealand has fallen again, which is a clear sign of slowing consumer demand. The short recovery period after lifting the quarantine restrictions can be one of the reasons.
According to the CFTC, a long position was re-formed on the CME after a weekly increase in long contracts by 260 million, but even this positive signal did not change the overall picture – the estimated price, considering the dynamics of interest rates and the state of the stock market, is still declining. As a result, expectations for NZD are getting worse, and a downward reversal is becoming more likely.
The reversal of the estimated price is primarily due to a change in rate expectations, which, in turn, worsened after RBNZ changed its position. In particular, ANZ Bank currently expects the RBNZ rate not to remain above zero. Also, as predicted recently, there will be a decline to -0.25% around April next year. At the same time, the asset repurchase program is expected to expand to $ 120 billion within the next two years.
These changes are based on RBNZ's reassessment of risks. The economic viewpoint is more unclear, with GDP and labor market forecasts being revised downward as nobody recognizes what the effect of reestablished coronavirus-related limitations will have, but it is certain that these will not be positive changes.
The nearest support zone is 0.6450/60, its expected decline will strengthen the bearish impulse. Therefore, it is recommended to sell based on strengthening the downward impulse.
AUD/USD
The Commonwealth Bank survey showed that business activity in Australia is falling again after a pullback in May-July. Although the slowdown in the manufacturing industry is still not very obvious, the decline in the services sector from 57.8 p to 48.8 p looks threatening and is primarily associated with a huge decline in demand due to re-introduced quarantine measures. Moreover, the inflow of new orders is decreasing, and employment is declining at an even faster rate.
In turn, NAB Bank predicts a long-term decline in inflation in Australia and around the world - it will drop to 1% by the end of 2021. Inflation has never been so low in Australian history.
As a result, the RBA will have to apply measures to stimulate economic growth. Expectations for the RBA's upcoming actions are similar in many ways to those in other countries, so forecasts for long-term rates are being revised downward.
These changes result in a decline in the estimated fair price. The net short position on CME remained virtually unchanged, but the target price continued to decline, which is mainly due to a change in interest rate expectations.
There is a reassessment of the prospects for changing the yield spread between AUD and USD in favor of the latter. These changes in the mood of investors are not yet noticeable, especially against the background of the growth of stock indexes, but they are already there – the most informed are preparing for a decline in demand for commodity currencies.
The AUD/USD pair is expected to decline to the nearest support zone of 0.7030/50 which is still limited by some growth of positive mood on global markets.
