Investors continue to rush between the two most important factors affecting their moods, which traditionally include the gradual exit of economically developed countries from quarantine associated with coronavirus infection and the worsening tension between China and the United States.
Despite the complex and ambiguous picture of the world economy getting out of the coronavirus captivity, demand for risky assets increased significantly in April and May, which is primarily associated with the hope that the end of quarantine measures against the backdrop of unprecedented incentive measures from world central banks will increase the pace of demand recovery in the wake of growth in economic activity, which ultimately will support higher prices for stocks of companies, commodity and commodity assets and weaken the dollar.
The scenario of the development of events that we proposed earlier, accompanied by an increase in the exchange rates of commodity and raw materials against the dollar, continues. This dynamic is supported by the publication today of unexpectedly positive data on the Chinese economy, which makes us believe that China will become the impulse of the restoration of growth in industrial and overall economic activity in the world. There was even an opinion that it was in the current conditions of China that it would come out on top in the world in the economic confrontation with America, which in fact caused Washington's nervous reaction and its measures aimed at inciting discontent in Hong Kong. Now, let's move back to the statistics.
According to the data presented, the Caixin Manufacturing Sector Manufacturing PMI (PMI) in May rose above expectations to 50.7 points against the April value of 49.4 points and the forecast of increase to 49.6 points.
Statistics figures inspired market participants, which caused the resumption of growth in the Australian, New Zealand and Canadian dollars.
Today, the attention of the markets will also be focused on the publication of data on business activity indexes in the manufacturing sector (PMI) of the UK, Germany, the eurozone and the USA. Unlike the situation in the Chinese economy, it is hardly worth expecting that April will be the turning point that indicates the beginning of the restoration of economic activity. It should be noted that COVID-19 pandemic first spread in China and its tough measures quite successfully coped with its consequences. However, there are fears of the probability of a second wave of this infection spreading this fall of the year. We believe that the April values of this indicator may turn out to be even worse for the USA and Britain and in the whole eurozone, but in Germany, it is likely that it will increase.
How can the currency market react to the publication of these data? Most likely, the general positive trend, primarily for commodity currencies, will continue. The euro and the pound which it is pulling may also continue to increase, but this will be primarily due to the weakness of the dollar against the continued demand for risky assets, which forces investors who bought the dollar earlier to leave it.
Assessing the prospects for general trends in world markets, we believe that the demand for risky assets will continue, although it will not be linear. The US currency will primarily weaken in relation to commodity currencies, whose rates will return by mid-summer to the levels of the end of February.
Forecast of the day:
The AUD/USD pair is trading above a strong resistance level of 0.6685. It has broad prospects for continued growth to a local maximum at the end of last year. The pair may correct down to 0.6700 if it does not break through the level of 0.6750. But in any case, we consider it possible to buy it either on breaking through this level or on a pullback from 0.6700 with the target of 0.6825.
The USD/CAD pair fell below the level of 1.3740. We believe that it will continue to decline to the level of 1.3620 or even lower to 1.3600.