According to an ISM report released on Monday, the US manufacturing sector is showing the fastest growth rate since 2004. The main index rose to 60.8 points, growth was recorded in 16 of 18 sectors, except for oil, which is not surprising after serious problems in Texas. There is an increase in new orders, the employment rate has recovered to the highest level since May 2019, and stocks are shrinking.
At the same time, high rates of recovery revealed significant problems in production chains, there is a serious lack of resources, skilled personnel, harsh winter has led to power shortages, and rising costs of materials, particularly steel.
Until Friday, when the next report on the labor market will be published, the dollar will remain under pressure, as the release will have a serious impact on the Fed's position before the meeting on March 17. At the moment, there is a high probability of seeing a strong report, since the January report was so disastrous that the lack of positive dynamics will cast doubt on the recovery of the US economy as a whole. Accordingly, from tomorrow's ISM report on the services sector, investors expect not just positive, but positive precisely on the employment sub index. If the expectations are met, then the next wave of demand for risky assets will form in the markets.
The yield on the 5-year TIPS bond rose to 2.40%, matching a 10-year high. Rising yields mean rising inflation expectations, which in turn means continued demand for risk. Commodity currencies will resume growth after a short correction.
NZD/USD
After the RBNZ raised its economic forecasts at last week's meeting, the threat of a rate cut, which until recently was considered more than likely, has become a thing of the past. Even though the tone of the accompanying statement was generally "dovish", the forecasts for inflation, employment, and GDP are significantly increased, as the macroeconomic data from the last, that is, November, the meeting turned out to be much better than expected.
Following the meeting, a local maximum of 0.7460 was recorded, after which the kiwi rolled back down as part of the correction.
The future of the NZD directly depends on how quickly the world will come out of the restrictive measures. Perhaps at the May meeting, the RBNZ will present a rate forecast or at least justify its absence. At the moment, investors proceed from a pessimistic scenario, expecting the opening of the borders by 2022, which will mean explosive GDP growth.
The accumulated long speculative position on NZD has slightly increased, the bullish advantage is more or less confident.
No important macroeconomic news is expected this week. The kiwi will follow global trends that dictate increased demand for commodity currencies. The position of the RBNZ and the strong pace of economic recovery will push the kiwi up, the trend remains bullish. A correction to the 0.6860/90 zone is technically possible, but there are no fundamental reasons for a reversal. After the consolidation, another storm of resistance at 0.7556 is likely, this time successful, and we are waiting for the development of the upward movement.
AUD/USD
The RBA left monetary policy unchanged during its Tuesday meeting. The tone of the accompanying statement is moderately neutral. Noting the improved outlook for the global economy, the RBA is nevertheless cautious in assessing the inflation outlook, as it expects weak wage growth for "several more years", and this is a clear signal to the markets that there are no prospects for a rate increase.
In the futures market, there is an approximate equilibrium, but on some additional indicators, the Aussie still looks confident. The estimated price is directed upwards, there are no signs of a reversal yet, so the current decline should be considered corrective.
According to several indirect indicators, the Aussie has an advantage over the US dollar - this is both the rise in commodity prices and the steady growth of activity in the manufacturing sector. Exports are growing, and trade conflicts with China have faded into the background.
The main target is a three-year high of 0.8140, with a high probability that it will be updated soon. The next target is 0.8290/8300, where consolidation may begin.