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CFTC report does not give reasons to expect a long-term increase in optimism. Overview of USD, NZD, and AUD

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At the close of Monday, the S&P 500 set a new all-time high of 4791p. Most of the Asia-Pacific indices also closed in the green zone, and the European one is growing. The surge of optimism looks stable, with an increase in demand for raw materials and commodity currencies.

The CFTC report, released with a slight delay yesterday, offers a completely different picture to comprehend. Let’s start with the fact that short positions on oil instruments are increasing, that is, speculators see oil not above current prices, but below in the long term. Accordingly, a sharp rise in oil in the last day (March Brent futures settled above $ 78/bbl.) does not reflect long-term market preferences, but rather has a corrective character.

Commodity currencies are also correcting in the downward direction. It should be noted that the growth of short positions in CAD, NZD, and AUD, which, together with the dynamics of oil futures, indicates the downward direction, that is, a flight from risk. The pound also has small losses, but the euro and the yen are stable and without any positioning deviations. As a result, the steady demand for the US dollar should be noted again.

It can be assumed that the wave of optimism will end soon and January will reopen the risk sell-off season.

NZD/USD

The economic prospects of New Zealand in the coming 2022 are assessed with restrained optimism. The unemployment rate has reached an all-time high of 3.4%, while household incomes remain at high levels. At the same time, retail trade experienced “phenomenal growth” even in the absence of tourists. According to ANZ Bank, domestic demand is high.

The growth of export prices outpaced the growth of import prices, which positively affected the balance of payments.

The RBNZ has been cutting incentives since July, first discontinuing purchases under the LSAP program, and then raising the rate to 0.75%. The RBNZ’s confidence gave reason to count on an advanced normalization schedule relative to the Fed, which would have given the New Zealand dollar an advantage and pushed for growth. But in November, optimism diminished sharply. So far, the forecast is as follows – the rate will reach 2% by the end of 2022, which gives a chance for an upward reversal of NZD/USD.

The settlement price is falling and this is a consequence of a sharp reduction in a long speculative position in futures, as well as a deterioration in the dynamics of the yield spread.

It is believed that the time for NZDU/SD growth has not come yet. The current strengthening is considered a correction. The support level of 0.6695 has held out, but the chances of retesting remain high. The main target is 0.6450.

AUD/USD

Banks active in Australia are expecting a strong recovery in the 4th quarter. The labor market looks stronger than in the US. In any case, the lost jobs due to COVID-19 fully recovered in November. Moreover, household consumption growth and a strong influx of business investment allow us to count on GDP growth of 4.1% in Q4.

As for the longer-term perspective, the unemployment rate is expected to decline to 3.8% by 2023. The forecast coincides with the forecast for the US, but since 3.8% is the lowest level in a decade, employment growth will lead to wage growth, and hence to an increase in inflation. ANZ Bank expects that the RBA will start raising rates in 2023, that is, with a delay of about 6-12 months relative to the Fed, and will bring the rate to 2% by about the end of 2024.

The forecasts are good, but we must assume that the Fed will move faster in the normalization of monetary policy, which will lead to a shift in the yield spread in favor of the US dollar. Accordingly, the Australian dollar can only count on periodic upward corrections. The long-term trend will remain bearish.

The calculated price is directed downward and there are no signs of an upward reversal.

The AUD/USD pair reached the resistance level of 0.7240 as part of the upward correction. As long as the short-term situation is in favor of the demand for risk, the correction can be continued. The next resistance is 0.7310/20 and then 0.7385. It is logical to use the growth for sales with the nearest target of 0.6990.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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