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After the long weekend in the USA, Great Britain and a number of Asian countries, the markets are trading very vigorously, E-mini futures add about 2%, European stock indices are in a good plus. In the absence of other explanations for such ambitious optimism, it remains the main reason to consider a way out of the restrictive measures for coronavirus and the associated hopes for a global recovery. Countries announce the lifting of restrictions one by one, and news of rising tensions between the US and China is fading into the background.
But let's not forget that the main blow to the global economy is yet to come. The Congressional Budget Office predicts the federal budget deficit in 2020 at 18%, and this is the highest level since World War II.
The development of the situation will most likely require an expansion of the incentive program, which will provide markets with short-term support, but will reveal underlying fundamental problems. Positive growth is not sustainable.
NZD / USD
The kiwi is one of the G10 growth leaders on Tuesday. In the previous review, we assumed that a resistance test of 0.6173 is possible, and it happened, the kiwi is trying to build on success by responding to the removal of quarantine measures in a number of countries. The main effect here is that tourism for New Zealand is about 10% of GDP, given its impact on related industries, so a way out of a pandemic for the New Zealand economy can become a stronger growth factor than for most G10 countries.
The estimated fair price slowed down, but there was still no turning up.
On CME, the net short position is still very large and weekly changes are minimal. Long-term interest rates continue to decline, this is primarily the impact of RBNZ, which supports the purchase of assets. The threat of negative rates persists, a lower level of the yield curve has a beneficial effect on the credit market, and there is no reason to expect changes in policies that already work well.
In addition to tourism and the RBNZ, the demand for kiwi is also supported by a stable trade balance. In April, exports managed to stay above 5 billion amid falling imports.
Despite updating the local maximum, we are still of the opinion that the growth of kiwi is poorly confirmed fundamentally and may end at any moment. Tonight, the RBNZ will provide a report on financial stability, which will be accompanied by a press conference, which may cause increased volatility.
After the breakdown of resistance 0.6173, the kiwi is preparing to test the resistance zone 0.6250 / 70, if the markets assess the RBNZ report quite positively, this level can be reached already tonight, after which, from a technical point of view, nothing will restrain the growing momentum up to 0.6450.
AUD / USD
The Australian dollar is one of the leaders of growth, closely approaching the resistance of 0.6684. In addition to external positive, growth was also facilitated by a number of internal news.
The Australian government has overestimated the amount of wage subsidies by $ 60 billion, which will reduce the projected budget deficit to 70 billion in 2019-20. NAB Bank expects that after September (the official date for the end of subsidies) the government will be able to extend the subsidy program, which increases consumer demand and inflation expectations will also contribute to increased investment.
The estimated price has turned up, despite the fact that on the CME, the net short position in Aussie has grown by more than 11% per week. Deep support for the demand for risk has not yet formed, despite a bullish momentum.
On Thursday, the head of the RBA Low is expected to give a speech on the senate. The said speech can either strengthen the momentum of the Aussie or weaken it. In any case, we should not forget that for the time being CME speculators are confidently holding a short position, that is, AUD/USD can turn down at any moment when the external positive is gone. We should wait for testing at 0.6684, a purchase is possible in the expectation of a successful break with a short stop, since fundamentally risky assets are clearly not yet ready for purchases.
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