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AUD NZD SELL (AUSTRALIAN DOLLAR - NEW ZEALAND DOLLAR)After the continued dovish comments from the RBA, as well as the divergence in central bank expectations in terms of tapering, as well as iron ore prices looking a bit vulnerable, we anticipated more downside for the AUDNZD. However, after breaking out of a squeeze last week, the pair found some solid resistance close to 1.830 and has seen quite the push lower at the start of the week. The move has been mostly attributed to yet another dovish stance from Governor Lowe earlier during the Asia Pac session, as well as comments from the Australian Health Minister that said he sees the start of a third wave of virus cases. With this in mind, we would expect the AUDNZD to remain pressured in the short term, and due to the divergence between tapering expectations between the RBA and RBNZ, there should be a skew to the downside med term as well. We have jobs data for Australia as well as GDP data due for NZ later this week so keep that in mind.
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NZD USD BULLISHThe primary drivers for NZD are its high-beta status and the RBNZ's monetary policy outlook. As a high-beta currency, NZD has remained broadly well supported in times of risk-on and as the overall risk outlook and tolerance of the market has improved over recent months. With coronavirus vaccines programs now underway in many countries, we expect the months ahead to see a further gradual improvement in the overall risk outlook and global economic outlook. Additionally, expectations for further easing by the RBNZ and the adoption of negative rates has notably declined. Consequently, with further easing from the central bank in the immediate future viewed as being highly unlikely, NZD is likely to find support against currency's which have much more accommodative central banks. All-in-all, with the RBNZ on hold, improving commodity and global economic outlooks and New Zealand's strong grasp on its domestic coronavirus situation, NZD should remain broadly well supported.
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GBP USD BULLISHThe focus for GBP is likely to be firmly fixed on the coronavirus outbreak now that the UK and EU have reached a Brexit agreement. Of course, although the market's focus on Brexit is now likely to markedly fade, it's worth noting that it will remain a key factor for the UK's economic outlook as the UK comes to terms with its new trading relationship with its largest trading partner. Indeed, reports have noted that in the first month since the UK began its new trading relationship with the EU, exports to the continent fell by 68%. Indeed, the impact of Brexit and the surge in coronavirus cases in the UK will notably weigh on its economic performance for the foreseeable future. Consequently, the UK's ability to contain its outbreak and minimize the economic cost will be key to GBP's fundamental outlook. Nevertheless, with a no-deal Brexit outcome avoided, the BoE pushing back on NIRP in the immediate future and the UK's vaccine rollout progressing smoothly with 1 in 3 UK citizens having now received at least one vaccine dose, we hold a bullish fundamental outlook for GBP.
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EURUSD Tipped To Weaken To At Least 1.175 Say NordeaForeign exchange analysts at Nordea notes the strength in recent US data releases and the upgrading of consensus forecasts surrounding US growth. The bank expects that strong growth, especially in relation to the Euro-zone will lead to further Euro-to-Dollar exchange rate selling in the short term. It expects that EUR/USD will weaken to at least 1.1750 and potentially further. Strong US growth expectation will boost the US Dollar (USD) The bank notes that recent US data releases have been stronger than expected and there was a much stronger than expected jobs report on Friday with an increase in non-farm payrolls of 379,000 compared with consensus forecasts of an increase close to 200,000. “Consensus economists seem to be competing among themselves to hike their US growth forecasts following: i) fiscal divergence, ii) vaccine roll-out divergence and iii) a more benign financial impulse from currency weakness in 2020. We wouldn’t fight this trend.” Short-term growth expectations will inevitably be boosted by Senate approval of the $1.9trn support package. There will inevitably be a positive impact on consumer spending given cash payments to individuals. The US economy is now expected to perform much more strongly that the Euro-zone and history suggests this will strengthen the dollar. Bond yields liable to increase further In contrast from their expectations last month, the bank is now less confident that the huge increase in liquidity resulting from the drawdown in the Treasury’s cash balance will weaken the US dollar. Expectations of stronger growth will tend to increase the threat of bond selling. Nordea notes that, in comments last week, Fed Chair Powell declined to push back against the increase in bond yields. The bank is concerned over the threat of further cash selling of Treasuries which would put further upward pressure on yields. If higher yields trigger a slide in equities, the dollar could also gain defensive support.
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Gold to shine again?Everybody hates gold these days, but with the March FOMC meeting coming up, things could get "dynamic" to the upside. The surge in gov debt over past 10 years is huge and interest payments going forward are not looking great. Real rates must be kept negative. With FOMC around the corner Fed probably needs to do something. YCC is probably pre mature, but there are other ways to start preparing the crowd. Should they address some of the "issues", gold could become the asset to squeeze higher. Even if the probability could be small, we believe options plays offer an interesting risk/reward. It is a small premium you pay should Fed give gold a boost. Now, from a technical analysis, wait for the price to form a continuation pattern and watch strong price action for buy.
OANDA:XAUUSD
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ING's exchange rate projections - EUR/USD rate forecast at 1.300Foreign exchange analysts at ING considers that stresses in the bond market could continue in the short term and contribute to a further dollar correction stronger . Nevertheless, it expects inflation fears will subside which will allow yields to stabilise. In this environment, the bank expects that the dollar will weaken again as the Fed maintains a very accommodative monetary stance. The bank has a 12-month Euro-to-Dollar (EUR/USD) exchange rate forecast of 1.3000. US Dollar (USD) exchange rate losses to resume, Fed to stay very accommodative ING notes the importance of US bond markets and increase in yields for short-term currency moves. The sharp increase in yields has triggered dollar gains and a dip in commodity currencies while the Swiss franc and Japanese yen have weakened. This threat could continue in the short term; “With the Fed yet to express concern over the bond sell-off, US Treasuries could stay under pressure into the March 17th Fed meeting. EUR/USD could briefly correct to 1.17 mid-month.” Nevertheless, ING does not consider that there will be permanent inflation threat and expects that yields will stabilise which will allow pro-cyclical currencies to strengthen again. In short this means we regard the current dollar rally as a bear market bounce and remain fully invested in a 2Q story of a broadening global recovery, which should lift all currencies – including the EUR. ING expects that the Euro-zone vaccine programme will eventually get into gear which will help underpin the Euro. The bank maintains a 12-month EUR/USD forecast of 1.3000 as the dollar loses ground and the Euro posts net gains.
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GBP/USD Exchange Rate Rises as Global Covid-19 Vaccine Rollouts The Pound to Dollar (GBP/USD) exchange rate rose by 0.6% today despite the ‘Greenback’ being buoyed by rising US Treasury yields. The pairing is currently trading around $1.39. The US Dollar benefited from a strengthening of yields this week following the passing of President Joe Biden’s historic stimulus package of $1.9 trillion. As a result, this bolstered confidence in an economic rebound for the American economy – the largest economy in the world. However, improved risk-sentiment has limited the appeal of the safe-haven ‘Greenback today’, hence a relatively weak GBP/USD exchange rate. Sophie Griffiths, the market analyst at OANDA, commented: ‘Vaccine rollouts are keeping up pace, particularly in the UK and US, and economic reopening is going well so far. Conviction of a strong economic recovery is boosting risk sentiment and driving demand for riskier assets such as equities. Yesterday’s troubles of rising bond yields have been quashed, for now, and the US dollar is slipping lower.’ In US economic news, today saw the publication of the US NFIB Business Optimism Index for February, which rose to 95.8. Consequently, confidence continues to grow in the US economy, but improving confidence in the global market has limited the appeal of USD. Pound (GBP) Rises as UK Economic Optimism Drives Demand for Sterling The Pound (GBP) rose against USD today thanks to growing confidence in the outlook for the UK’s economy in the months ahead. Following UK Prime Minister Boris Johnson’s promise of an ‘irreversible’ easing of lockdown measures in the months ahead, the GBP/USD exchange rate has shown an upward trend. In UK economic data, today saw the release of the latest British Retail Consortium’s (BRC) Retail Sales data for February, which beat forecasts and rose by 9.5%. Helen Dickinson, BRC chief executive, commented on the report: ‘February saw a return to growth after a disappointing start to the year. The Prime Minister’s roadmap to reopening prompted a burst in spending on non-food items, such as school uniforms. Furthermore, with another month of lockdown still to go, online sales were high, rewarding the retailers who have invested digitally.’ As a result, confidence in the UK economy is growing, despite warnings from key scientific advisers that a premature easing of lockdown measures could prove a potential disaster. Nevertheless, GBP investors remain generally confident that daily cases of Covid-19 will continue to drop, and vaccinations will increasingly be rolled out. GBP/USD Forecast: US Inflation Data in Focus US Dollar (USD) traders will be awaiting tomorrow’s release of February’s US Monthly Budget Statement. Any further signs that the US economy could be on the trajectory for a significant recovery in the months ahead would weaken demand for the safe-haven currency. Tomorrow will see the release of the US Consumer Price Index for February, which is expected to rise by 0.2%. However, the USD/GBP exchange rate is likely to remain subdued as risk-sentiment continues to improve. The GBP/USD exchange rate will likely continue to rise, however, as confidence in the UK economy improves as Covid-19 cases continue to drop.
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Emerging market FX to fall another 4-5% - Morgan StanleyIn other words, they expect a stronger dollar narrative to prevail. The firm is downgrading their view on emerging market (EM) FX for the second time in two weeks, expecting another 4-5% drop given the current market landscape. The MSCI EM currency index fell by 0.7% at the lows today and was poised for its biggest daily drop since March last year, only to recover a little upon testing the key support. That highlights the dollar's standing right now in the market and how vulnerable other currencies, including EM currencies, are to the recent resurgence in the greenback. Now, from a technical analysis, wait for the price to form a continuation pattern and watch strong price action for buy.
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NZD USD BUY (NEW ZEALAND DOLLAR - US DOLLAR)Hi there. Short term bias is remain total to the downside due to the strength on the dollar but in the medium term our bias is still firmly to the upside and these are the fundamental reasons: Due to its high beta status, NZD’s performance over recent months has been strongly correlated with the market’s overall risk tone, with the currency weakening substantially as markets sold off and strengthening as the risk tone recovered and turned positive. Recent global data has been encouraging, continuing to support NZD and the overall risk tone; although, the ongoing spread of the virus throughout the world and second waves in many countries still pose significant risks. For a fundamental improvement in NZD’s outlook and bias, there will need to be an easing of concerns surrounding the spread of the coronavirus (which appears likely given the vaccine rollout).
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AUD USD BUY (AUSTRALIAN DOLLAR - US DOLLAR)Hi there. Short term bias is remain total to the downside due to the strength on the dollar but in the medium term our bias is still firmly to the upside and these are the fundamental reasons: *Australia is an open economy and its currency is considered as a pro cyclical asset. It’s a very good environment for the economy and the currency in this current economic climate when the market thinks in that early post recession economic recovery phase and expecting for the re bouncing growth, inflation and demand. Now, we expect the market’s overall risk tone and performance in commodities to remain the dominant driver and influence for AUD going forward. Of course, pay close attention to global progress in containing and managing the coronavirus outbreak too.
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GBP USD BUY (POUND STERLING - US DOLLAR)Hi there. Short term bias is remain total to the downside due to the strength on the dollar but in the medium term our bias is still firmly to the upside and these are the fundamental reasons: 1. Monetary policy: the last BOE meeting affirmed the earlier suspicious that the bank is no longer looking at negative interest rates anytime soon which has seen markets pricing out a move into negative rate territory later this year. 2. Vaccine program: the UK continues to lead the G7 pack in terms of their vaccine program as the UK has already vaccinated 30% of the population. This lead is positive for the UK as it means they should be able to hit the ground running with their economic recovery and gives them a big advantage compared to places like the EU in terms of relative growth dynamics. 3. Last GDP data has shown that the economic has been more resilient that previously expected. Even though most, if not all, of the Q4 gains have been wiped out with new lockdown measures, it does bode well for the eventual recovery once the majority of the population has been vaccinated. 4. On the dollar side the FED’s ultra-easy policy and average inflation targeting means that even if there is the chance of relative growth outperformance and inflation that higher rates are still a long time away, which should keep pressure on the dollar in the med-term .
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NZD USD BUY (NEW ZEALAND DOLLAR - US DOLLAR)Hi there. Some fundamental reasons to buy NZDUSD: Due to its high beta status, NZD’s performance over recent months has been strongly correlated with the market’s overall risk tone, with the currency weakening substantially as markets sold off and strengthening as the risk tone recovered and turned positive. Recent global data has been encouraging, continuing to support NZD and the overall risk tone; although, the ongoing spread of the virus throughout the world and second waves in many countries still pose significant risks. For a fundamental improvement in NZD’s outlook and bias, there will need to be an easing of concerns surrounding the spread of the coronavirus (which appears likely given the vaccine rollout).
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GBP USD BUY (POUND STERLING - US DOLLAR)Hi there. Some fundamental reasons to buy GBP USD: 1. Monetary policy: the last BOE meeting affirmed th earlier suspicious that the bank is no longer looking at negative interest rates anytime soon which has seen markets pricing out a move into negative rate territory later this year. 2. Vaccine program: the UK continues to lead the G7 pack in terms of their vaccine program as the UK has already vaccinated 30% of the population. This lead is positive for the UK as it means they should be able to hit the ground running with their economic recovery and gives them a big advantage compared to places like the EU in terms of relative growth dynamics. 3. Last GDP data has shown that the economic has been more resilient that previously expected. Even though most, if not all, of the Q4 gains have been wiped out with new lockdown measures, it does bode well for the eventual recovery once the majority of the population has been vaccinated. 4. On the dollar side the FED’s ultra-easy policy and average inflation targeting means that even if there is the chance of relative growth outperformance and inflation that higher rates are still a long time away, which should keep pressure on the dollar in the med-term.
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