The UK received a new strain of coronavirus instead of a trade agreement with the EU. In view of this, the pound has no reason to continue rising, however, it surprisingly remains near the highs. Yesterday, US stock indices lost on average about 2%, since there was a delay in passing the next aid package through the Senate, but the situation was resolved successfully – the Senate approved a new package of measures to stimulate the economy for $ 900 billion, following the House of Representatives.
However, markets have not yet reacted to the passage of the bill through Congress. Asian indices are losing from 1 to 3%, February Brent futures went below $ 50 per barrel, and Europe will most likely open in the red zone. Markets need some time to assess the danger of a new COVID-19 strain, as this will have a direct impact on the scale of additional quarantine measures.
NZD/USD
New Zealand's economy is showing impressive resilience, while there was a rising panic about the second wave of COVID-19 in most countries such as Europe and the US, which is further complicated by the emergence of a new virus strain.
December's ANZ business optimism index rose from -6.9p to + 9.4%. The forecast was improved from 9.1% to 21.7%. At the same time, inflationary pressure is increasing, construction is expanding at a record pace, companies are announcing their intention to expand their staff, and 6.8% of firms surveyed expect profits to grow.
There are two main reasons for such a noticeable surge of enthusiasm. First, it is due to the structure of New Zealand's exports which are less dependent on raw material prices, since the main component of exports is agricultural products, which will find their sales regardless of the demand for manufactured goods. Secondly, summer is coming in the southern hemisphere, which reduces the seasonal activity of viruses. And by the onset of winter, New Zealand hopes to reach a mass vaccination of the population, which will completely avoid a second wave of the pandemic.
New Zealand dollar's net long position increased by 263 million over the reporting week, that is, to 1.006 billion. We have a bullish trend, so the target price continues to rise steadily.
The possibility of a technical correction is the main risk waiting for traders. The chances for which are growing after a pullback breakdown of the resistance zone of 0.6750/80. The support levels are consistently 0.6915 and 0.6835. The main support is 0.6750/80, but a decline to it can be triggered only by insider information about the RBNZ's intention to tighten financial conditions, which is unlikely until February at least. NZD is targeting the level of 0.7500 and will try to resume growth with any downward pullback.
AUD/USD
The Australian dollar experienced a significant one-day decline, which was caused by reports of an outbreak of COVID-19 in Sydney, but the negative effect was quickly overcome and did not have a noticeable impact on the markets. According to analysts at NAB Bank, the short period of weakness in both NZD and AUD has a cause that lies outside of Australia and New Zealand, and is mainly caused by concerns about a strong slowdown in business activity first in the UK, and then in other Western countries as the new strain of coronavirus spreads.
The growing concerns led to a decline in commodity prices, with a pullback of up to 4% in some positions, which put pressure on commodity currencies. It is unclear how long-term the reaction will be, so the estimated price of AUD is still above the long-term average. A downward reversal looks unlikely on Tuesday morning.
Nevertheless, these growing fears will not last long – the growth of Australia's retail sales amounted to 7% in November, compared to November 2019. The turnover increased by 13.2%, that is, consumer activity is at a high level and growth is strengthening.
Moreover, the upcoming summer reduces the risk of coronavirus, so the main factor of concern is the slowdown in global production and, as a result, the decline in raw material prices.
If these concerns do not develop, the Australian dollar will resume growth in the very near future with a target of 0.8110/20 and further 0.83. Such a development seems the most likely at the moment.