The US dollar continues to receive significant support in the wake of the situation with coronavirus, and the effects of which on the markets led to its increase.
The ICE dollar index has been increasing steadily for the third week, breaking a strong resistance level of 99.00 points this week. The reason for this dynamic is a shift in investor attention from the Asia-Pacific region and Europe to the United States. The situation with coronavirus in China and expectations of its negative consequences not only on the economy of this country, but also on this region as a whole, are forcing investors to "go" to the American dollar, which is currently regarded as a full-fledged currency-refuge. Moreover, even the traditional Japanese yen in these cases declined markedly with the dollar, falling to the values of April last year.
As we indicated earlier, the reasons for this situation in the markets are the expectation of a noticeable weakening of the growth of the Chinese economy in the first quarter, which will undoubtedly hit the whole region in particular and the world economy as a whole. A strong drop in exchange rates in Asia is already observed. At the same time, Australian and New Zealand dollars decline almost vertically against the "American". This trend is supported by the yen. Even after the beginning of the recession of the epidemic in the Middle Kingdom, they will experience growth problems due to the negative impact of a drop in exports from Australia and New Zealand to the PRC.
Under these conditions, which were formed against the backdrop of the influence of the coronavirus, American financial assets are in demand, of course, first of all, we mean government bonds of the US Treasury, and the dollar, which is bought not only to insure market risks against other currencies, but also how the currency that you can buy American Treasuries.
Assessing the overall picture, we believe that such dynamics will continue in the next week, if the currently existing factors do not disappear.
Today, the attention of the market will be focused on the publication of consumer inflation data in the eurozone and the values of the index of business activity in the manufacturing and service sectors of Germany, the eurozone, Britain and the USA. It can be assumed that if the data show generally more positive values in America than in Germany, the eurozone or Britain, then the dollar will receive a new impulse for growth against the single currency and the pound. And the positive figures for sales in the secondary housing market in the United States will only strengthen the upward dynamics of the US dollar.
Forecast of the day:
The AUD/USD pair is trading at the level of 0.6600. We believe that a decrease below this level will lead to a continued fall in prices next week to 0.6500.
The NZD/USD pair is trading below the level of 0.6320. We believe that it will continue to decline to the level of 0.6240 if it overcomes the level of 0.6300.