Best time for speculators, oil has plunged into a deep peak; Overview of NZD and AUD

The panic sale in the oil market, caused by a sharp decline in demand amid a pandemic and the fullness of storage facilities, led to stock sales and an increase in demand for defensive assets, but the market reaction should still be considered restrained. As of 6:00 UTC on Wednesday, the Australian S&P/ASX 200 and the Chinese Shanghai Composite are trading in positive territory, while the Japanese Nikkei is slightly declining.

The resulting panic is mostly related to "paper traders" who are in difficult conditions due to the inability to reset delivery contracts before expiration. Oil pressure will continue until the start of the OPEC ++ agreement, but the world will more closely monitor the situation with the spread of coronavirus and look for positive signals.

The main factor that can support NZD and AUD in the current difficult conditions is the growing probability of weakening quarantine measures and the opening of the economy. These expectations are based on a marked decline in the rate of spread of coronavirus.


Here, New Zealand lowered the quarantine risk from 4 to 3, which could return to work about 500 thousand workers after April 27. Australia will announce some measures to weaken in the middle of the week, right up to the opening of beaches in Sydney. And any news on this subject will block the negative from panic in the oil market and will contribute to the restoration of NZD and AUD.


Head of RBNZ, Adrian Orr, stated the opinion of RBNZ that a negative rate is not excluded and that the Bank will think about additional incentives in May, along with a comment that the government will also want to issue more debts. This is in line with the market consensus that the RBNZ will seek to expand its QE program at the May meeting. Apparently, we need to wait for further steps to "monetize debt" when the government launches new and new obligations on the market, and the RBNZ supports it by expanding the QE program.

According to the CFTC report, the cumulative short position declined slightly last week, but uncertainty remains high. On the one hand, the estimated price is still higher than the spot price, which is a bullish factor for NZD, while the estimated price has a clear downward trend.


The key support for the Kiwi is 0.5920/30, when breaking through it, you can sell in expectation of increased downward movement with the nearest goal of 0.5840 and further 0.5700. At the same time, a decline in panic can provoke an increase in NZD amid weakening of quarantine measures, which will give the Kiwi a certain advantage against other currencies. In this case, the resistance is 0.6060/70, and there will be a choice for further directions.


The economic downward reversal set off by the coronavirus epidemic has led to a strong weakening of both monetary and fiscal policies, which will cost the Australian economy around 12% of GDP according to NAB. The budget deficit will decrease to 4.5% in 2020 and up to 13% in 2021, while public debt can reach its highest level since the 1960s.

Moreover, the measures taken are primarily aimed at supporting wages (about $ 130 billion), 32 billion will go to support small and medium-sized businesses and special measures aimed at supporting consumer demand in the amount of 23 billion in the next 2 months. On the other hand, pension funds, tax breaks to support investment in business are not overlooked. States are reimbursing health care costs for banks, mechanisms of "emergency funding" of at least 90 billion have been created.

All these measures, as well as many other smaller measures, will lead to the largest budget deficit after the 2nd World War.


With regard to significant decline in commodity prices, the chances of Australian currency to continue to grow are declining. The estimated level of AUD/USD is still higher than the spot level, but the total short position on AUD has increased. As a result, speculators are trading on a further decline in the Australian dollar.


The key support is the level of 0.6250, the decline of which can strengthen sales and move AUD/USD to the 0.6160/6200 zone, this is currently the most likely scenario. Growth is limited to 0.6350/60, where sales may resume.

The material has been provided by InstaForex Company -