The main US stock indices managed to finish the session in the positive zone and updated another high before the Fed meeting. The US Treasury yields also slightly pulled back after the collapse last week. However, it is too early to expect that the demand for risk has returned to the markets. The real yield on the 10-year US and European bonds declined to a record low, real US Treasuries drop below -1.13%, and European swaps reached -1.65%. At the same time, the US new home sales fell to their lowest level in more than a year, reflecting much weaker demand after significant price increases, and German IFOs plunged unexpectedly in July against the expected growth.
There is a weak business activity, and trading is likely to remain range-based until the FOMC gives new benchmarks on Wednesday. The political news is also bearish – Republicans rejected the offer of the White House and Democrats to meet and resolve all outstanding issues, questioning the possibility of passing a $ 579 billion bill before the August congressional recess. It can be assumed that the demand for protective assets will dominate by the end of the week.
New Zealand published its quarterly income data for households and companies, with the net disposable income of households declining by only 0.1%. This is undoubtedly the result of measures implemented by the government, primarily wage subsidies, which deterred employers from mass layoffs.
The forecasts for inflation are clearly bullish. In Q2, inflation increased by 3.3% yoy, which is much ahead of the RBNZ's May forecast. ANZ Bank expects that the onset of inflation is just beginning, and expects to see 4.2% in Q3. The current dynamics give ANZ reasons to assert that the RBNZ will start raising rates next month, and there will be 5 more increases until the end of 2022 until the rate reaches the level of 1.75%.
Last week, the RBNZ completed the LSAP program, and it is surprising that traders have not yet reacted to the clearly bullish prospects of the New Zealand dollar. It is clear that the strong US dollar and China's problems play a role, which puts pressure on the entire Asia- Pacific market, but still, if the RBNZ starts raising rates, then the NZD yield will begin to outpace the average market yield, which should pull capital flows along with it.
But this is not the case so far. According to the CFTC report, the net long position fell by 14 million, to 211 million in the reporting week. Speculators of the New Zealand dollar have not yet started their purchases. Accordingly, the target price is still downward.
It can be assumed that the chart is one step away from an upward reversal, but until this happens, there is a chance to update the local low. The NZD may decline to the lower border of the channel 0.6680/6700, which is also an extension of the Fibo 38.2% of the large-scale growth in 2020. This is a bearish target. The nearest target where the decline may stop is 0.6780/90. In any case, we are waiting for signs of a reversal.
The Australian dollar continues to be under pressure. The PMI indices published last week showed a significant reduction in business activity in the services sector, as well as a reduction in output in the manufacturing sector. NAB Bank attributes the current situation to the fact that the Australian authorities were forced to introduce new restrictive measures in Sydney, which were then expanded to other states, and it is obvious that these measures will continue after July 30.
The government's vaccination schedule assumes coverage of 80% of the population by November, so domestic business activity will be suppressed in the coming weeks. Considering the fact that the current global trend is to exit risky assets, as well as the fact that inflationary pressure due to restrictions in the services sector will fall, it is not necessary to wait for the Australian dollar to grow.
The net short position in AUD increased by 472 million, reaching -2.616 billion. The bearish advantage is significant, the target price continues to decline, and the probability of a further decline remains high.
The local low of 0.7292 formed last week is likely to be updated. The nearest target is 0.7250/60, which is the lower border of the channel. The possible upward correction is limited by the zone of 0.7460/80. The long-term target is the wide resistance zone of 0.6990/7060.