The report on the movement of foreign capital in US securities confirmed an unpleasant trend – in June, there was no increase in non-resident investments in US government bonds and corporate bonds. Throughout the pandemic months, US government securities, with the exception of stocks, were not in demand, which means only one thing – investors no longer perceive them as safe assets.
The US net international investment position reached -12.057 trillion as of the end of the 1st quarter, which is a record negative result in the entire history of data collection. The reduction in purchases of government bonds directly indicates a crisis of confidence.
The Fed cannot endlessly increase the supply of the dollar in foreign markets, which is inevitable in times of crisis, and at the same time buy back government debt, since foreign investors are losing interest in US debt securities. In the current environment, the choice will be made in favor of internal stability, which will allow the Fed to remain neutral before the election. The chances of a stronger dollar in the last two months before the election are growing, and the Fed minutes, which are expected to be published on Wednesday, may be surprising.
NZD/USD
There is an increasing fear about a second wave of the coronavirus pandemic. The New Zealand government decided to postpone parliamentary elections for a month due to the outbreak of the disease in Auckland. The RBNZ is expanding the asset repurchase program to $ 100 billion, which exceeded the forecast of $ 90 billion.
The threat of further deterioration in macroeconomic indicators in New Zealand remains. The government has raised the level of threat, which automatically leads to the return of restrictions, primarily in the service sector, and if this level is raised again, and everything goes to that, then it would be too optimistic to expect an increase in consumer demand by the end of the year.
According to the CFTC report, the net short position of the NZD decreased by 84 million for the reporting week, but for its outlook, the effect is zero - the estimated fair price continues to decline.
The postponement of the elections reduces the relevance of the publication of the report on the economy and changes in forecasts, which the government of New Zealand is preparing this week. The publication is expected on August 20, the Treasury will present its view on the development of the economic situation in the future 4 years. At the moment, there is a consensus assessment of the forecast as moderately positive, but the possibility of a surprise is not excluded, given the recent increase in the threat level in Auckland to 3 levels and 2- in some other regions. If this assumption is confirmed, and there are grounds, then the NZD will receive an additional negative impulse and strengthen the downward movement.
NZD/USD slowed down in front of a strong support zone at 0.6500/30, it is possible that it will rise to the resistance 0.6580/90, followed by a final reversal downward. It is more likely that it will go below 0.65 with a target of 0.6370/90.
AUD/USD
The Australian dollar moves in the wake of most commodity currencies, net short has increased by 174 million, which increases the odds in favor of a bearish reversal. The estimated price declined.
At the same time, the Australian currency resumed its growth as of 5.00 Universal time, while the AUD/NZD cross-instrument exceeded 1.10 for the first time in two years.
The AUD looks pretty convincing, despite the growing risks, as the markets evaluated positively the speech of the head of the RBA, Lowe, in the Australian parliament last Friday. Yes, all the duty words were spoken and the main threats were listed, in response to which the RBA could further reduce the interest rate, increase the purchase of bonds and change the urgent financing mechanism. At the same time, Lowe stressed that there are no discussions regarding negative rates, and foreign exchange interventions to establish a fair AUD rate are not even discussed.
Nevertheless, the probability of a reversal is growing even though the mood is optimistic. Today, the recent high of 0.7243 is expected to be tested, which is already quite close, but this test is unlikely to be successful. A decline to the support zone 0.7130/40 and subsequent re-targeting to the level of 0.7060 is more likely.
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