The European and American stock indexes started the new week with positive dynamics after the prior volatile week, recovering some of the losses. The reason is the positive news on Omicron. The latest data from South Africa, received on Monday, indicate that the rapid increase in morbidity is not accompanied by mass hospitalization, severe course of the disease, and especially the death of patients. This means that Omicron may mean the transition of COVID-19 into the category of seasonal viral diseases.
This is important news because it means that the exit from the pandemic madness is approaching, and it can provoke a return of interest in risk.
Another factor in the possible return of interest in risk is news from China. On December 15, the NBK will reduce the rate of mandatory reserves for most banks by 0.5 percentage points, which will release 1.2 trillion yuan (188 billion USD) of liquidity. Immediately after this announcement, the RBA was followed by the statement of the CPC, which intends to stabilize the economy in 2022 by easing some restrictions on property rights, which is also perceived by the markets in a positive way.
It is assumed that demand for risky assets will dominate on Tuesday, but the sustainability of this demand is still under strong question.
NZD/USD
The New Zealand dollar is the only one that still holds a long position against the US dollar, but it is also rapidly falling. As follows from the CFTC report, the weekly change amounted to -342 million to +725 million. The situation is aggravated by the rapid decline in T-bills yields, which sharply turned down the estimated price.
New Zealand has arguably the strongest position among developed economies. The unemployment rate is record low, with record high levels of trade, very strong consumer demand, and sky-high inflation. Each of the parameters separately does not cause concern, but all together requires a quick response from the RBNZ, which is forced to eliminate incentives, since high inflation affects households with relatively low incomes most of all.
We assume that the upward correction will be shallow if it happens amid an increase in demand for risk. The nearest resistance is 0.6795, then 0.6900, where sales may resume. A resumption of the decline and an attempt to consolidate below the level of 0.6695 looks more likely.
AUD/USD
The scheduled meeting of the RBA ended this morning, where there are no surprises – the rate remained at the current level of 0.1%, and the repurchase program in the amount of 4 billion per week was extended at least until February 2022.
In the accompanying statement, the RBA draws attention to the fact that the economy is recovering. There are no fears that the new strain of covid Omicron will undermine the pace of recovery. At the same time, inflation growth is moderate, which excludes changes in monetary policy at the current stage.
By February, the RBA will have accumulated 350 billion bonds and will assess the need for policy changes if it sees progress in achieving employment and inflation targets, as well as if global trends change markedly. In the meantime, the situation is in favor of not changing anything. Given that the markets expect the Fed to tighten more quickly than the RBA, it can be assumed that the yield spread will not change in favor of the Australian dollar, which will continue to put downward pressure on it.
The weekly change in AUD was -1.142 billion. The net-short position is growing and has reached -5.715 billion, so there are no signs of a bullish reversal. The estimated price declines, and the Australian dollar remains under pressure.
A possible corrective growth will meet the first resistance at the level of 0.7100, then 0.7165 and 0.7235. Growth can take place only with a global return of interest in risk, which is possible with the contribution of several factors at the same time – a decrease in the COVID-19 threat, an increase in commodity prices, and a revival of international trade. This is unlikely in the current conditions, so the dominant scenario remains the resumption of the decline in the AUD/USD pair. The first target is a confident consolidation below the level of 0.6990, then a movement to 0.6760.
