Slowdown in global demand increases pressure on commodity currencies. Review of USD, NZD, AUD
July 12, 2023 3:21 am
The New York Federal Reserve’s Survey of Consumer Expectations showed a continuation of the trend where consumer inflation expectations have been falling. It showed that the median expected rate of inflation dropped again to 3.83% in June from May’s 4.07. The inflation forecast on a three-year horizon remained unchanged in June at 3%, while the five-year indicator increased by 0.3 percentage points to 3%.
Several Fed representatives gave speeches on Monday. Meester and Daly synchronously expressed readiness to continue raising the rate and then keep it at that level to reduce inflation. Bostic from the Atlanta Fed spoke less hawkishly, noting that, although the inflation level is high, it might be better to wait a bit, as economic growth is already slowing down.
Meanwhile, the inversion of the yield curve is gaining strength – the longer the time to maturity, the lower the yield, which is a sure sign of an approaching recession. The spread between 10-year US Treasuries and shorter-term ones has gone much lower than in all previous crises, and, as historical experience shows, a recession occurs a few months after the turnaround.
Tension increased after the release of inflation data in China. Annual consumer prices were unchanged in June, weaker than the 0.2% rise in May, which turned out to be the lowest value in 28 months and raised fears about an impending deflation. The absence of price pressure in China is usually associated with a slowdown in the economy, that is, in essence, it is an indicator of a decrease in global demand.
The ZEW indicator, following Sentix, confirmed the slowdown of the eurozone’s economy, falling in July from 10 points to -12.2 points, and the UK labor market report showed a higher-than-expected increase in wages in May, which raised the demand for the pound due to a correction of the Bank of England rate expectations in a higher direction.
NZD/USD
The Reserve Bank of New Zealand (RBNZ) will hold its next monetary policy meeting. The rate is expected to remain unchanged, and the RBNZ will try to avoid extreme phrasing in its final statement, which will prevent forming a direction of movement in either way. It is also expected that the peak rate will rise to 5.75% by November, this forecast is already reflected in the prices.
The balance of economic news suggests that the RBNZ will not change anything. The GDP for the 1st quarter was weaker than the Bank expected, business surveys showed a decrease in the load on production capacities, and inflation expectations are also decreasing.
New data will appear later – inflation for the 2nd quarter will be announced next week, and the labor market report even later. This data may adjust the RBNZ’s position by the next meeting – demand is slowing, the economy is weaker than the Bank expected in May, and a recession seems inevitable. The question is just whether this slowdown will be enough to bring inflation back to 2%, which is still very far away.
Positioning for the NZD continues to remain neutral, speculative interest fluctuates near zero levels, the calculated price has gone above the long-term average, but has no direction.
A week earlier, we expected attempts to grow to the upper band of the corrective channel, this opportunity is still preserved today. If the RBNZ adds hawkish notes to its position, growth to 0.6270/90 is possible. If the results of the meeting are in accordance with the forecasts, there will be practically no reasons for growth, and in this case, a decline and slow drift to the middle of the 0.6040/60 channel are more likely. In general, take note that there is no clear direction.
AUD/USD
The head of the RBA will speak on Wednesday at the National Conference of the Economic Society of Australia in Brisbane. The title of the speech is “Review of the Reserve Bank and Monetary Policy”, which suggests that the essence of the speech will be broader than the immediate outlook for monetary policy, but some comments on current monetary policy considerations are still likely, and the question and answer session will give another opportunity to understand whether the RBA is considering another rate hike in August.
If Lowe confirms forecasts that suggest the rate will be raised twice more to 4.60%, the speech will support the Aussie. If not, or if he evades more or less direct answers, the Aussie is likely to strengthen its fall.
However, it’s likely that the speech will be cautious, and the market reaction moderate, since all the key economic parameters will be published later: employment for June (July 20), consumer price index for the second quarter (July 26), and retail sales (July 28). Everything comes down to the fact that it is more advantageous for the RBA to wait for new data and only then forecast its further actions, so, most likely, the range trading will continue.
The net short position in AUD increased by 0.3 billion over the reporting week to -2.95 billion, bearish positioning. The calculated price fell below the long-term average, it is moving downward.
AUD/USD tried to break out of the range, it failed, so now the aussie might fall towards the support range of 0.6590/6600.
The material has been provided by InstaForex Company – www.instaforex.com
The New York Federal Reserve’s Survey of Consumer Expectations showed a continuation of the trend where consumer inflation expectations have been falling. It showed that the median expected rate of inflation dropped again to 3.83% in June from May’s 4.07. The inflation forecast on a three-year horizon remained unchanged in June at 3%, while the five-year indicator increased by 0.3 percentage points to 3%.
Several Fed representatives gave speeches on Monday. Meester and Daly synchronously expressed readiness to continue raising the rate and then keep it at that level to reduce inflation. Bostic from the Atlanta Fed spoke less hawkishly, noting that, although the inflation level is high, it might be better to wait a bit, as economic growth is already slowing down.
Meanwhile, the inversion of the yield curve is gaining strength – the longer the time to maturity, the lower the yield, which is a sure sign of an approaching recession. The spread between 10-year US Treasuries and shorter-term ones has gone much lower than in all previous crises, and, as historical experience shows, a recession occurs a few months after the turnaround.
Tension increased after the release of inflation data in China. Annual consumer prices were unchanged in June, weaker than the 0.2% rise in May, which turned out to be the lowest value in 28 months and raised fears about an impending deflation. The absence of price pressure in China is usually associated with a slowdown in the economy, that is, in essence, it is an indicator of a decrease in global demand.
The ZEW indicator, following Sentix, confirmed the slowdown of the eurozone’s economy, falling in July from 10 points to -12.2 points, and the UK labor market report showed a higher-than-expected increase in wages in May, which raised the demand for the pound due to a correction of the Bank of England rate expectations in a higher direction.
NZD/USD
The Reserve Bank of New Zealand (RBNZ) will hold its next monetary policy meeting. The rate is expected to remain unchanged, and the RBNZ will try to avoid extreme phrasing in its final statement, which will prevent forming a direction of movement in either way. It is also expected that the peak rate will rise to 5.75% by November, this forecast is already reflected in the prices.
The balance of economic news suggests that the RBNZ will not change anything. The GDP for the 1st quarter was weaker than the Bank expected, business surveys showed a decrease in the load on production capacities, and inflation expectations are also decreasing.
New data will appear later – inflation for the 2nd quarter will be announced next week, and the labor market report even later. This data may adjust the RBNZ’s position by the next meeting – demand is slowing, the economy is weaker than the Bank expected in May, and a recession seems inevitable. The question is just whether this slowdown will be enough to bring inflation back to 2%, which is still very far away.
Positioning for the NZD continues to remain neutral, speculative interest fluctuates near zero levels, the calculated price has gone above the long-term average, but has no direction.
A week earlier, we expected attempts to grow to the upper band of the corrective channel, this opportunity is still preserved today. If the RBNZ adds hawkish notes to its position, growth to 0.6270/90 is possible. If the results of the meeting are in accordance with the forecasts, there will be practically no reasons for growth, and in this case, a decline and slow drift to the middle of the 0.6040/60 channel are more likely. In general, take note that there is no clear direction.
AUD/USD
The head of the RBA will speak on Wednesday at the National Conference of the Economic Society of Australia in Brisbane. The title of the speech is “Review of the Reserve Bank and Monetary Policy”, which suggests that the essence of the speech will be broader than the immediate outlook for monetary policy, but some comments on current monetary policy considerations are still likely, and the question and answer session will give another opportunity to understand whether the RBA is considering another rate hike in August.
If Lowe confirms forecasts that suggest the rate will be raised twice more to 4.60%, the speech will support the Aussie. If not, or if he evades more or less direct answers, the Aussie is likely to strengthen its fall.
However, it’s likely that the speech will be cautious, and the market reaction moderate, since all the key economic parameters will be published later: employment for June (July 20), consumer price index for the second quarter (July 26), and retail sales (July 28). Everything comes down to the fact that it is more advantageous for the RBA to wait for new data and only then forecast its further actions, so, most likely, the range trading will continue.
The net short position in AUD increased by 0.3 billion over the reporting week to -2.95 billion, bearish positioning. The calculated price fell below the long-term average, it is moving downward.
AUD/USD tried to break out of the range, it failed, so now the aussie might fall towards the support range of 0.6590/6600.
The material has been provided by InstaForex Company – www.instaforex.com
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