FX.co ★ Volatility may surge today amid the publication of inflation data and start of reporting season. Overview of USD, NZD, AUD

The volatility in the currency markets is expected to surge today, since the US consumer price index for March will be published, to which there is increased attention, as well as the start of the quarterly reporting season.

The comments of Fed officials do not stop. Yesterday, the Federal Reserve Bank of Boston Chairman, Mr. Bullard said that tightening the policy could be considered if the overall level of vaccination against COVID-19 reaches 75% (now about 40%). There is another positive news for the markets, which significantly relieves tension. According to rumors, Treasury Secretary J. Yellen is ready to refrain from declaring China a currency manipulator.

Ahead of important news on stock and debt markets and weak dynamics, traders are waiting for new benchmarks. In any case, the US dollar remains the favorite of the markets, while fluctuations are possible only between risky and defensive assets, depending on the upcoming news.

NZD/USD

The New Zealand government has announced the long-awaited opening of a regular service between Australia and New Zealand, as the country's one-year period of self-isolation has finally ended. This is great news primarily for travel companies and it should have led to a surge in demand for the New Zealand dollar, but it did not happen. There are several reasons for this.

This morning, the NZIER Institute released the results of its quarterly business confidence survey, which look mixed at best. A net 11% of firms expect general economic conditions to worsen in the coming months, slightly better than 16% in the previous quarters, but still far from optimistic. In the retail sector, the gloomiest mood prevails, and a significant decline in demand is reported. The construction sector is worse than in the previous quarter, while positive signals can be considered in the rising prices, which is expected to lead to an increase in inflationary pressure, as well as employment growth.

The RBNZ will hold its next meeting tonight. Most observers are inclined to believe that the Central Bank will take a wait-and-see attitude. At the same time, macroeconomic indicators look unconvincing – GDP for the 4th quarter is 1% less than the RBNZ forecast, but if you look at the economy integrally, then the Central Bank tends to consider the situation much better than it was assumed a year ago, when the pandemic was just starting.

The New Zealand dollar's net position hardly changed during the reporting week. The CFTC report recorded a slight decline of 61 million. In fact, the primary negativity comes from the growth of the yield spread in favor of the US dollar. Accordingly, the settlement price is directed downwards, that is, financial flows are directed towards the exit from the NZD.

The current consolidation in the NZD/USD pair is regarded as a respite before the next wave of decline. Here, the target is set at 0.6750/90.

AUD/USD

Australia's business conditions rose to a record high in March, with clear gains across all industries and states. Despite the fact that the business confidence index declined from 18p to 15p, the conditions index increased from 8p to 25p. According to NAB, this indicates that Australia came out of the recovery phase after the lifting of restrictions, and the recovery itself was significantly faster than expected.

An additional positive factor is the high level of capacity utilization, which is the equivalent of high GDP growth rates for the export-oriented economy of Australia.

In calmer times, such results would be an excellent reason for the Central Bank to declare the full adequacy of its monetary policy, but everyone remains cautious now. On the other note, the US stock indexes update records, while the Australian S&P/ASX 200 index is rising noticeably slower. Similarly with the yield spread, UST is growing faster than similar Australian securities. The CFTC report showed that AUD's net long position declined by $ 620 million over the week, that is, to 312 million. Thus, the long position is almost gone, and the trend is negative. As a result, the estimated price is sharply pointed downwards.

On Thursday, the labor market report is expected. The signals indicate a slowdown in employment growth. In case of a disappointing report, this can provoke the continuation of sales. The targets remain the same. We expect the level of 0.7562 to be retested again soon, and then continue to the target of of 0.7417.