After the New Year holidays, the main driver, which is pushing the growth in demand for risky assets, is still investors' hope that the next negotiations between Washington and Beijing on trade will be positive.
Negotiations were announced before the new year and began on Monday, and are expected to end on Tuesday. With them, the markets have high hopes, believing that their success will reduce trade tensions between the two strongest economies in the world, the American and the Chinese.
The latest economic statistics published in the People's Republic of China clearly indicate an intensification of the process of slowing the growth of the local economy. And the last values of the index of business activity in the manufacturing sector even began to show a negative trend. This situation prompted many investors to believe that Beijing could "break down" and bow to America, since for the time being the trade war between countries has had a negative effect on the Chinese economy, and recent data from the United States, in particular, employment figures show that the states are still far from noticeably negative, despite the first signals that have appeared earlier about the beginning of its inhibition.
An additional positive that supports the demand for risky assets is not only the positive picture from the US labor market that we mentioned above, but also the growing expectations that the Fed can complete the interest rate increase cycle this year. In any case, a sharp increase in major stock indices in America is precisely what this indicates.
Assessing the likely cumulative effect of the reasons mentioned above, it can be said that in a situation of normalization of sentiment in world markets, the US dollar may be under local noticeable pressure, primarily in relation to commodity and commodity currencies. The positive outcome of the negotiations between Washington and Beijing will lead to a marked strengthening of the Australian and New Zealand dollars. The Canadian currency, like the Russian one, may continue to strengthen against the dollar in the wake of rising oil prices and the resumption of increased investor interest in emerging markets (EM). With regard to the likely dynamics of the euro and sterling, as well as the Japanese yen, the first two will depend on the situation associated with Brexit, until it becomes clear what it really threatens Britain and continental Europe, so we should expect further consolidation against the dollar.
The yen, we believe, will be influenced by the overall development of the situation. The decline in demand for risk in the markets will strengthen it. The reverse picture will put pressure on it.
Forecast of the day
The currency pair AUD / USD is trading above the level of 0.7100. Positive news from talks between the US and China may push the pair to a local increase to 0.7240. Negative news will lead to its decline to 0.7015 after falling below the level of 0.7100.
The currency pair NZD / USD is trading above the level of 0.6700. The development of events in the pair will be similar, as in AUD / USD. Positive news from the negotiations will push the pair to 0.6800, and negative to 0.6620.
The material has been provided by InstaForex Company - www.instaforex.com
