FX.co ★ Monday's panic sales are just the beginning, the risk aversion trend may develop today. Overview of USD, NZD, AUD

The pressure on risky assets increased markedly on Monday, growing concerns about a new strain of coronavirus were superimposed on the decision of OPEC+ to start restoring production levels, and there was a sharp demand for bonds. At the same time, the yield on the 10-year US Treasury declined below 1.2% for the first time since February. Similar dynamics are shown by the bonds of Germany, Great Britain, Canada, etc.

As for the delta strain, it is worth noting that Prime Minister Johnson self-isolated on the first day that restrictions in the UK were lifted. So, calls were published in the US to abandon trips to Britain. The surge in the cases is observed in developed markets with a high level of vaccination, so we are hoping that the number of severe cases requiring hospitalization will be small. However, the effectiveness of the vaccines is questioned, which increases the general nervousness in the markets.

It can be assumed Monday's trend will continue today and risky assets will remain under pressure. The Japanese yen and the US dollar are in favor today.

NZD/USD

The New Zealand dollar is the only one of the G10 currencies that resists the pressure of the US dollar and does not weaken, despite the noticeably increased risk aversion. The reason for this resistance was already indicated previously, and it lies in the fact that the RBNZ intends to immediately begin curtailing its soft monetary policy.

The RBNZ fears a significant overheating of the economy. The latest inflation data showed quarterly growth of +1.3% (forecast +0.8%) and annual growth of + 3.3% (forecast +2.8%). The annual inflation exceeded the upper limit of the RBNZ target range and updated the 13-year high.

It is obvious that concerns about the rapid spread of the delta strain are growing, but they can easily disappear in a month or two. Meanwhile, inflation will continue to rise, and the economy will remain overheated.

Commenting on the RBNZ's decision to cut stimulus measures, as the balance of risks has changed, ANZ Bank expresses its strong agreement with this assessment and expects a rapid increase in rates, since the momentum for inflation is extremely strong, and the increase in core inflation in the second quarter made August a necessary date for starting the rate growth cycle.

According to the latest CFTC report, the NZD was the only commodity currency in futures that was bought along with protective ones. Of course, the general panic background exerts pressure, so the estimated price is lower than the long-term average, but the momentum is weak and an upward reversal can occur at any time.

The New Zealand dollar continues to remain in the consolidation zone around the support level of 0.6915, and despite its resistance, a downward exit is still more likely. The nearest target is 0.6915.

AUD/USD

The Australian economy is being seriously tested due to both external and internal factors. OPEC+'s decision to gradually increase production puts pressure on commodity currencies, and NATO's accusation of China in global cyberattacks creates additional tension around Australia's main trading partner. In addition, sanctions against China are one step away, which will be a shock for all the countries of the Asia-Pacific region given the size of its economy.

The published employment data showed that the number of hours worked declined. The additional restrictions introduced in Sydney could lead to a loss of $ 10 billion of GDP, or 1.9%, which means that GDP for the third quarter will be negative again. The pressure on the rate of wage growth is rising, which means that the prospect of a rate hike in 2022 is becoming less likely.

If COVID-19 restrictions last until August, the RBA may postpone the expected further reduction in quantitative easing after mid-November. There is almost no good news.

The net short position in AUD rose by 279 million, to -2.144 billion over the reporting week. There is a negative trend and the target price is below the long-term average. Therefore, there is no reason to wait for the AUD/USD pair to make an upward reversal.

A week earlier, it was assumed that the Australian dollar will decline to the support level of 0.7320/4. This target has been broken, and since the trend persists, the decline may resume. The next target is the level of 0.7050, but the possible corrective pullback is limited by the level of 0.7480.