12.10.202011:35 Forex Analysis & Reviews: Fundamental grounds for sustained positive growth are insufficient. Overview of NZD and AUD

It is known that the most informed people are bookmakers and stockbrokers. After reports emerged that Trump had contracted the coronavirus, the stakes for Biden's victory went up sharply and are currently at the highest for the entire time of the presidential race.

The fact that the infection is long-term does not play against Trump, but for him – it is already clear that he carries the disease in a mild form, which means a strong immune system and the appearance of antibodies. There is no doubt that the Trump campaign will beat this fact closer to the vote.

On Monday morning, European stock indexes looked neutral, but oil went down. Meanwhile, gold and demand for bonds are also growing. Markets are not at all sure that the rise in optimism is fundamentally justified.

NZD/USD

Unlike most other countries, New Zealand's economy looks a lot confident. In any case, the latest data indicate a more stable recovery. The tourist flow is recovering and economic activity is growing (according to ANZ, the business optimism index rose to -14.5P in October from -28.5 a month earlier, the activity forecast also rose from -5.4p to 3.6p, both indicators noticeably better than forecasts that suggested a slight decline).

Production capacity utilization has already reached the level of 2019, even slightly exceeded this level, and investment flows are recovering rapidly.

The key factor in evaluating the NZD rate is the assessment of the RBNZ position. As has been repeatedly confirmed, the Central Bank intends to lower the rate in April next year, and there is no reason to assume that these plans will be revised. What's more interesting is the development of a new lending program, which should appear before the end of this year. The fate of the kiwi will ultimately depend on the nuances embedded in this program. On one hand, the RBNZ has no serious reasons for a large-scale expansion of aid. While on the other hand, an insufficiently dovish-like approach against the background of a more favorable state of the economy will lead to unnecessary growth in NZD due to an increase in the commodity-weighted rate (TWI), which the RBNZ is doing its best to avoid.

Inflation data will be published on October 23. The forecast is positive and strong data will be a very powerful bullish factor.

The futures market remains neutral with a slight bullish edge. According to the latest CFTC report, the weekly change is +116 million and the decline in the estimated fair price has stopped.

If a bearish reversal was more likely a week ago, there is no such certainty today. Probably, the drift will continue in the sideways range of 0.6500/6770, but in the longer term, a downward turn is still more reasonable.

AUD/USD

The net long position on AUD increased by 133 million during the reporting week. The weak bullish advantage remains at 770 million, but the fair price is still lower than the spot price. This is primarily due to the historically low yield of Australian T-bills, the yield spread is too small to form a stable investment flow.

Thursday is an important day for the Aussie because of the fact that on this day, RBA Head Lowe is expected to speak, and employment data will also be published. At the moment, markets expect the RBA to cut the rate at the next meeting to 0.10%, stopping half a step from negative territory, but what will happen in this case with deposit rates, which are already at 0.10? This question needs an answer. In addition to the agenda is the high probability of the introduction of a quantitative easing package, so Lowe's speech, if he is forced to give answers to pressing questions, can lead to a rapid change in the AUD rate.

The high of 0.7242 has formed last Friday near the upper border of the bearish channel, which gives reason to consider sales from this level with a target of 0.6775. While the markets are dominated by positivity, such a strong movement looks unlikely, but the grounds for this positive tap are shaky and are based only on growing confidence in Biden's upcoming victory in the US election. It is worth recalling that, 4 years ago, there was exactly the same confidence in the victory of Clinton, ergo results of the social network surveys should be treated with great caution.