The RBA kept the rates unchanged at 0.10% but the RBNZ could be raising the rates sooner. This has helped our NZDJPY long idea substantially. The AUDUSD currency pair rallied almost 0.5% ahead of the RBA interest rate decision. The central bank decided to keep its cash rate at 0.10% and keeps its target for three-year bond yields at 0.10%, which dropped the pair a bit lower. According to the RBA, the Australian economy is recovering more strongly than earlier expected. In the central bank’s view outlook for investments and households is positive. While the labour market recovery has remained strong the wage growth and inflation are well contained. The bank will continue bond purchases in September. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.

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NZDUSD (+0.78%) has rallied today strongly after it was forecasted that the RBNZ bank might raise interest rates in November this year. A recent survey of businesses in New Zealand indicated a strong improvement in business confidence. According to the study, companies are ready to raise prices while a record-high number of firms are facing challenges in hiring. This suggests that extraordinary high monetary stimulus is no longer justified. The economy doesn’t need such support anymore. The next RBNZ policy meeting is next week. Traders look forward to the meeting hoping the board members might shed more light on the schedule of monetary tightening. 

This week’s highlight is the release of the meeting minutes from the FOMC June meeting. This is where the Fed announced its new hawkish policy. The publication of minutes is scheduled for Wednesday and could have a major impact on the USD near-term as they are likely to contain further details on how soon the Fed might start to taper its asset purchase program.

Crude oil prices jumped higher on the back of the news that the OPEC+ ministers are calling for discussions on extending the eight-month extension on production limits. The limits proposal was earlier rejected by the UAE and the OPEC+ talks were postponed. WTI Crude futures are up by 2% at the time of writing this. Gold (+1.11%) and silver (+1.17%) are also rallying higher with the recent weakness in the USD. Since the NFP release on Friday the NZD (+1.3%) and AUD (+1.06%) have rallied strongly against the greenback. GBP (+0.79%) and CAD (+0.46%) have also gained significantly while the USD Index has dropped 0.37% over the same period.

Our long idea on NZDJPY (here) just got more boost from the positive business survey and from the speculation that the RBNZ might hike the cash rate in November this year. With the Japanese government simultaneously planning for more stimulus we have a bullish case for the NZDJPY currency pair. We suggested on the latest Bullish & Bearish Markets video that the NZDJPY pair was likely to move higher and possibly even break the 78.47 resistance. Now the pair is trading at 78.64. The next minor resistance level is at 78.93 (broken trendline) while the next significant resistance level can be found at the May high of 80.18.

AUDJPY was another long idea presented in the Bullish & Bearish Markets video.  The pair has rallied approximately 0.8% from the time of our analysis and is now trying to challenge a technical confluence area where a recent swing high and the SMA(50) coincide. If there is a decisive rally above the 84.25 resistance level the market could move to the 85.20 – 85.78 range. A failure to do so would indicate the recent low of 82.81 could be tested.

Macro Drivers for the USD 
As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.

The FEDThe Fed has now changed the tune and is moving away from the ultra-accommodative monetary policy. Currently, the expectation is that the first-rate hike would take place in the second quarter of 2022.
StimulusThe US lawmakers have authorised approximately five trillion dollars of economic stimulus and the Biden administration is negotiating with the Senate Republicans to introduce a $1.2 trillion infrastructure stimulus plan.
YieldsAfter trending higher since the beginning of August 2020, the Treasury yields have been moving lower or sideways since March. All in all, the yields and interest rates are extremely low on both nominal and real basis.
Employment Even though the June NFP report came in better than anticipated (+850K) the total is still 6.8 million jobs lower than at its peak in February last year. However, the Fed has said earlier recently that believes that the US is on a path to a very strong labour market as indicators of activity and employment continue to improve.
InflationThe year on year headline CPI change was 5% but not all inflation gauges agree with such a high number. The trimmed-mean inflation CPI index published by the Cleveland branch of the Federal Reserve Bank, rose only 2.6% y/y (0.4% m/m)

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 Market News & Facts 

  • RBA’s Lowe is not considering rate increases in 2023
  • The UK Prime Minister lifts Covid restrictions
  • OPEC+ meeting postponed
  • Central banks reportedly buying gold, moving out of the USD
  • China June Caixin/Markit Services PMI 50.3 (55.7 expected) 
  • ANZ Australian Job Ads for June +3.0% m/m
  • Australia to limit international arrivals by 50% due to the Delta strain
  • Philadelphia Fed’s Harker: tapering should start later this year
  • BOE ready to respond to signs of persistent inflation
  • UK final manufacturing PMI for June: 63.9 (64.2 preliminary)
  • Japan chief cabinet secretary Kato pondering new stimulus
  • Australian exports to 6% in May from 3% in April
  • Canada April GDP -0.3% m/m  (-0.8% expected)
  • US ADP payrolls 692K  (600K expected)
  • China June Manufacturing PMI 50.9 (50.8 expected)
  • China June Services PMI 53.5 (52.7 expected)
  • Fed’s Waller: 2022 rate hike is not ruled out
  • Fed’s Barkin: inflation and growth to peak in Q2 2021
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The Next Main Risk Events

  • AUD – RBA Governor Lowe’s Speech
  • EUR – ZEW Economic Sentiment
  • EUR – German ZEW Economic Sentiment
  • USD – ISM Services PMI
  • EUR – EU Economic Forecasts
  • USOIL – OPEC-JMMC Meetings
  • CAD – Ivey PMI
  • USD – JOLTS Job Openings
  • USD – FOMC Meeting Minutes

For more information and details see the TIOmarkets economic calendar here.

Trade Safe!

Janne Muta
Chief Market Analyst

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DISCLAIMER TIOmarkets offers exclusively consultancy-free service. The views expressed in this blog are our opinions only and made available purely for educational and marketing purposes and do NOT constitute advice or investment recommendation (and should not be considered as such) and do not in any way constitute an invitation to acquire any financial instrument or product. TIOmarkets and its affiliates and consultants are not liable for any damages that may be caused by individual comments or statements by TIOmarkets analysis and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his/her investment decisions. The analyzes and comments presented do not include any consideration of your personal investment objectives, financial circumstances or needs. The content has not been prepared in accordance with any legal requirements for financial analyzes and must, therefore, be viewed by the reader as marketing information. TIOmarkets prohibits duplication or publication without explicit approval. FX and CFDs are leveraged products. They are not suitable for every investor, as they carry a high risk of losing your capital. Please ensure you fully understand the risks involved. All the prices in this report are CFD prices based on price charts provided by TIOmarkets unless otherwise stated. 

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