Weaker China doesn’t lift risk assets, the USD is the market’s favorite. Overview of USD, NZD, AUD
August 16, 2023 3:28 am
The New York Federal Reserve published the Consumer Expectation Survey for July 2023, median inflation expectations fell across all three horizons, dropping from 3.8% to 3.5% for one year ahead – the lowest level since April 2021, and from 3.0% to 2.9% for both three and five years ahead.
UST yield is rising, which together with negative sentiment in Asia due to negative signals from China is putting pressure on the Japanese yen and supporting the US dollar.
China’s economy, a key trading partner for both Australia and New Zealand, is slowing down. Industrial production growth in July fell from 4.4% to 3.7% year-on-year, fixed capital investment from 6.8% to 3.7%. The trade balance increased, but this growth reflects not an increase in exports, but a rapid decline in imports, primarily of raw materials, which will lead to a further slowdown in production. Domestic demand is weakening, retail sales in July increased by 2.8% against 3.1% a month earlier.
China’s economic slowdown will inevitably impact Australian and New Zealand exports, leading to a decline, which will also put pressure on these countries’ currencies.
So far, the trend favors the US dollar continuing to strengthen against G10 currencies, as the demand for risk as the primary driver of global economic growth slows down, and the dollar as the main safe-haven asset is unmatched, as the Japanese yen significantly lags in yield.
NZD/USD
The Reserve Bank of New Zealand’s inflation expectations survey published last week showed some progress. The only indicator that increased was two-year expectations, which increased from 2.79% to 2.83%. Other forecasts, however, showed opposite dynamics – the one-year forecast dropped by 11 basis points to 4.17%, the forecast for 5 and 10 years decreased to 2.25% and 2.22%, respectively.
Inflation expectations are important for projecting central bank actions. At the moment we can say that the data is not so unambiguous as to force the RBNZ to abandon the current strategy, at the next meeting it is expected that the rate will be kept unchanged at 5.5% and the RBNZ will continue to monitor. It is assumed that if the RBNZ does raise the rate again, it will not be before November, by which time much could change.
The RBNZ was set to hold a meeting on Tuesday. Since the rate is expected to remain unchanged, there is likely to be some decline in NZD quotes in response to the results.
Speculative positioning in NZD remains neutral, with a weekly change of -120 million, a bearish bias of -22 million, i.e., minimal. The calculated price is declining, despite the fact that New Zealand bond yields are higher than UST yields.
The kiwi, as expected, found no grounds for corrective growth. The pair has reached the 0.5978 target, and now we expect it to move towards the lower band of the bearish channel at 0.5870/5900.
AUD/USD
The Reserve Bank of Australia’s minutes published on Tuesday morning had no noticeable impact on AUD quotes. The minutes confirmed that the RBA considered raising rates at the August 1 meeting but chose to interpret signs of slowing inflation as “encouraging.” As such, the rate was left unchanged.
Inflation in the second quarter fell deeper than expected, and the GDP forecast anticipates slow growth of 0.7% in 2023. Unemployment in June remained at 3.5%, which will support wage growth and, as a consequence, inflation. Overall, the economy has started to slow down, and therefore inflation has also started to decrease, but the rate of decline is still very low. There’s still a chance that, after a pause, the RBA will again raise the rate once or twice, and this probability will prevent the AUD from falling too low against the dollar.
The net short position in AUD decreased by 599 million over the reporting week to -2.826 billion. Despite this, the calculated price is going down, meaning that the direction of financial flows at the moment is clearly not in favor of the Australian dollar.
As expected, after slightly correcting higher, there was a re-test of the local low at 0.6460. The test was unsuccessful so far, as support held, but there’s still a high chance of another wave to the downside. We expect that it will continue to fall, with the main target being the lower band of the channel at 0.6330/50.
The material has been provided by InstaForex Company – www.instaforex.com
The New York Federal Reserve published the Consumer Expectation Survey for July 2023, median inflation expectations fell across all three horizons, dropping from 3.8% to 3.5% for one year ahead – the lowest level since April 2021, and from 3.0% to 2.9% for both three and five years ahead.
UST yield is rising, which together with negative sentiment in Asia due to negative signals from China is putting pressure on the Japanese yen and supporting the US dollar.
China’s economy, a key trading partner for both Australia and New Zealand, is slowing down. Industrial production growth in July fell from 4.4% to 3.7% year-on-year, fixed capital investment from 6.8% to 3.7%. The trade balance increased, but this growth reflects not an increase in exports, but a rapid decline in imports, primarily of raw materials, which will lead to a further slowdown in production. Domestic demand is weakening, retail sales in July increased by 2.8% against 3.1% a month earlier.
China’s economic slowdown will inevitably impact Australian and New Zealand exports, leading to a decline, which will also put pressure on these countries’ currencies.
So far, the trend favors the US dollar continuing to strengthen against G10 currencies, as the demand for risk as the primary driver of global economic growth slows down, and the dollar as the main safe-haven asset is unmatched, as the Japanese yen significantly lags in yield.
NZD/USD
The Reserve Bank of New Zealand’s inflation expectations survey published last week showed some progress. The only indicator that increased was two-year expectations, which increased from 2.79% to 2.83%. Other forecasts, however, showed opposite dynamics – the one-year forecast dropped by 11 basis points to 4.17%, the forecast for 5 and 10 years decreased to 2.25% and 2.22%, respectively.
Inflation expectations are important for projecting central bank actions. At the moment we can say that the data is not so unambiguous as to force the RBNZ to abandon the current strategy, at the next meeting it is expected that the rate will be kept unchanged at 5.5% and the RBNZ will continue to monitor. It is assumed that if the RBNZ does raise the rate again, it will not be before November, by which time much could change.
The RBNZ was set to hold a meeting on Tuesday. Since the rate is expected to remain unchanged, there is likely to be some decline in NZD quotes in response to the results.
Speculative positioning in NZD remains neutral, with a weekly change of -120 million, a bearish bias of -22 million, i.e., minimal. The calculated price is declining, despite the fact that New Zealand bond yields are higher than UST yields.
The kiwi, as expected, found no grounds for corrective growth. The pair has reached the 0.5978 target, and now we expect it to move towards the lower band of the bearish channel at 0.5870/5900.
AUD/USD
The Reserve Bank of Australia’s minutes published on Tuesday morning had no noticeable impact on AUD quotes. The minutes confirmed that the RBA considered raising rates at the August 1 meeting but chose to interpret signs of slowing inflation as “encouraging.” As such, the rate was left unchanged.
Inflation in the second quarter fell deeper than expected, and the GDP forecast anticipates slow growth of 0.7% in 2023. Unemployment in June remained at 3.5%, which will support wage growth and, as a consequence, inflation. Overall, the economy has started to slow down, and therefore inflation has also started to decrease, but the rate of decline is still very low. There’s still a chance that, after a pause, the RBA will again raise the rate once or twice, and this probability will prevent the AUD from falling too low against the dollar.
The net short position in AUD decreased by 599 million over the reporting week to -2.826 billion. Despite this, the calculated price is going down, meaning that the direction of financial flows at the moment is clearly not in favor of the Australian dollar.
As expected, after slightly correcting higher, there was a re-test of the local low at 0.6460. The test was unsuccessful so far, as support held, but there’s still a high chance of another wave to the downside. We expect that it will continue to fall, with the main target being the lower band of the channel at 0.6330/50.
The material has been provided by InstaForex Company – www.instaforex.com
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