Weak dollar and rising positive expectations support demand for risky assets; Overview of USD, NZD, and AUD

The business optimism index of small businesses rose in June to 100.6p, significantly exceeding the forecast of 90.9p, consumer inflation in June rose by 0.6%, which is also a positive signal after declining by 0.1% in May, allowing us to count on an increase in consumer activity.

At the same time, the dollar didn't react at all to the published data, since their positive significance could not influence the general negative outlook for the state of the US economy. The Federal budget deficit in June 2020 amounted to $ 864 billion, compared with a deficit of $ 8 billion in the same month last year. This increase is due to the economic disruption caused by COVID-19 and the response of the federal government to it, including the administration's actions and the adoption of four legislative acts.


The deficit amounted to 2.7 trillion dollars for the first 9 months of fiscal year 2020, budget revenues declined by 28% compared to June 2019 and the deficit grew by 2 trillion from April to June. Hopes that some of the uncollected revenue will go to the budget later this year look poorly justified, since the number of bankruptcies is growing at the same time.

The growth of the NFIB index is mainly based on a significant amount of financial support, as soon as this assistance begins to decline, optimism will immediately decline, and a reduction, given the deplorable state of the budget, is inevitable.

Nevertheless, it is currently necessary to proceed from the fact that optimism prevails despite the threat of another wave of COVID propagation. Stock indices in Asia-Pacific countries add more than a percent after US exchanges were closed yesterday, OPEC + countries are preparing to reduce quotas for limiting oil production, an API report this morning confirmed that oil demand is recovering - as of July 10, stocks declined by 8.332 million barrels. At the same time, the dollar looks weak, and this weakness will dominate for some time; due to this, commodity currencies will be favorites in the coming days.


The estimated fair price of NZD returned to the level of early March, the NZD/USD rate rose after it, having almost exhausted the effect of panic sales amid the spread of coronavirus, the trend remains positive.


After the restrictions are lifted, New Zealand reopens for tourism, however, statistics on the number of tourists arriving are not yet available, it is also unclear how much the level of demand will increase due to the opening of borders. ANZ monthly inflation study reinforces a positive mood. Inflation was 2.4% y/y in June, which means that a strong decline in consumer demand, as in most G10 countries, was avoided. Tomorrow, we will most likely receive official confirmation from the Bureau of Statistics, and NZD may respond to the publication growth.

Technically, the pattern of the NZD remains bullish. Testing the level of 0.6583 led to a pullback to the support zone of 0.6200/20, the probability of a second attempt, more hasty, looks high. Meanwhile, purchases from current levels are considered. The bullish momentum will be confirmed when the day closes above 0.6590, and the growth may strengthen.


According to the CFTC report, the short position on the Australian has declined almost to zero. The positivity remains, the estimated price is growing steadily, and the chances of updating the June maximum remain high.


The NAB Bank confidence index in the business environment significantly exceeded forecasts and activity is recovering faster than expected. Consumption returned to levels at the beginning of 2020, which gives reason to expect a weaker decline in GDP in the second quarter than was forecast a month ago.

If there are no political decisions that can provoke a new wave of panic sales, the AUD will take advantage of the favorable market conditions and continue to rise. Testing the level of 0.7063 seems almost inevitable, after which the bullish sentiment will strengthen. There is no reason for sales. Thus, the recommendation is to keep and strengthen purchases when updating the maximum.

The material has been provided by InstaForex Company - www.instaforex.com