Markets continue to respond to the development of the coronavirus pandemic, while not focusing much on both published macroeconomic data and the efforts of central banks and governments to reduce the negative effects. The calculation here is clear – financial institutions of most countries are taking similar measures, saving fast-falling economies as much as possible, and the currency cartel of the 6 largest central banks maintains low volatility in the currency market.
Since Monday, the markets tried to recover amid reports that European countries are approaching the peak of the disease, but from Tuesday evening, incoming data are declining again. France, the United Kingdom, Belgium and Sweden reported a new record high daily mortality rate, while in the United States, the number of coronavirus victims exceeded 11 thousand. Therefore, it is too early to expect a reversal.
Another wave of panic is inevitable. The drop in oil demand may significantly exceed 10 million barrels per day, which the OPEC + countries are unsuccessfully trying to agree on.
The growth of the panic will make protective assets in demand again, as a result of which the corrective growth of commodity currencies will be completed soon.
NZD/USD
New Zealand's government made a special clarification regarding its goals, which means that the ultimate focus is on defeating COVID-19, rather than just flattening the yield curve. This means that the quarantine measures will not be lifted too soon and the period of pressure on the economy may be prolonged.
As of March 20, the NZIER Institute sees a decrease in the index of investor confidence to -70p. In the services sector, the index drops to -76p. Thus, companies are getting ready for further reduction in staff and investment, which will inevitably lead to a drop in consumer demand.
On the other hand, the ANZ Bank suggests that the fall in GDP in Q2 will be about 17%, and partial recovery may begin only in Q3. It is clear from here that it is too early to expect a reversal of commodity currencies;which is being completed. The estimated fair value of NZD is still significantly higher than the spot price, but this imbalance will be reduced in the coming weeks.
A return to resistance 0.6000 / 20 is unlikely and so, we expect a decline to 0.5840 / 50 and further to 0.5800 / 10 in the future with a minimum of 2-3 days.
AUD/USD
The RBA, at the meeting that ended on April 7, confirmed the course on the targets for the rate and yield of 3-year bonds, leaving them unchanged. After announcing the targeting of yields, the RBA acquired $ 36 billion in T-bills in the secondary market, which is noticeably less in terms of GDP than it throws into the Fed markets, which indirectly indicates the stability of the Australian economy during the crisis period.
At the same time, the RBA additionally keeps a $ 90 billion credit line open because of the high level of uncertainty, because at the moment, it does not have methods for assessing the economic downward reversal. ANZ Bank notes that Australia's employment index fell 10.3% in March, and this is the largest drop since January 2009, while it is confident that the outcome of April is much worse. The activity index in the service sector from AiGroup dropped to 38.7p, this is the minimum since March 2009. It is noted that the pandemic actually destroys entire segments of the service sector. Based on OECD estimates, NAB Bank estimates that 5.8 million jobs will be affected one way or another, which will inevitably lead to a reduction in consumer spending.
Australian currency made an attempt to break through the resistance zone 0.6170 / 6210 in the wake of the weakening panic, which ended unsuccessfully. Nevertheless, this is expected. The gap between the estimated and spot prices is narrowing, the dynamics is negative, the chances of continued growth of AUD are decreasing.
A strong reduction in global oil production by at least 10 million barrels per day can provide support to the Australian dollar, but the chances of a similar result to the negotiations seem small. As a result, the development of a downward movement should be expected, the closest target is 0.6030 / 40, then 0.5970 / 90 and a steady exit from the side range down.
