As a result of Tuesday, the dollar fell against all major currencies without exception in the foreign exchange market. Continuing tensions in the markets, as well as statements by Fed members that it is necessary to continue the process of raising interest rates, did not support the US currency rate.
We can explain the decline of the dollar in the foreign exchange markets by the banal profit taking due to its local technical overbought. The "American" noticeably added last week in relation to all major currencies with the exception of the British, which continues to be at the mercy of the UK exit process (Brexit) and actually responds only to the news on this topic. Also, the dollar can be adjusted in the wake of the absence of a new negative with regard to the trade confrontation between Washington and Beijing, as well as new attacks on President D. Trump on the eve of the midterm elections to Congress.
Despite the local weakening of the US currency, we believe that it has potential after correction for new growth. This is primarily due to the expectation of continuing the process of raising interest rates by the Fed, which was unambiguously reported on Tuesday by Fed President Dallas R. Kaplan, who said he supports further "gradual" increase in interest rates, and President of the Federal Reserve Bank of New York J. Williams, who said that he would like to continue raising rates, which will return to a neutral level "relatively quickly" over the next year or "around it."
At the same time, against the background of tensions around the trade war between the US and China, we do not expect that the Central Bank of Australia and New Zealand will go to raise the cost of borrowing, which will generally put pressure on them in pairs with the US dollar. It seems that the Euro currency is unlikely to receive significant support, despite the decision of the ECB to stop stimulus measures this year. The euro will be adversely affected by the occasional debt problems of Italy and Greece, as well as the risks from Brexit.
Any increase in tensions in geopolitics and the global economy will support the demand for US government treasury bonds and, through them, the dollar, which will also be in demand as a currency of refuge. On this basis, we believe that it is necessary to buy it at the local weakening.
Forecast of the day:
The AUD / USD currency pair is trading below the level of 0.7135, growing on a wave of profit-taking. If the pair overcomes this mark, it may recover against the background of technical factors to 0.7230, but if this does not happen, we should expect the resumption of its fall to 0.7000.
The currency pair NZD / USD is trading below the level of 0.6500. It also rises in the wake of closing short positions. If the pair does not rise above 0.6500, it may turn around and fall to 0.6420, but overcoming this mark may lead to its limited growth to 0.6535.
