The Fed began its two-day meeting today, and markets are again seeing 7 rate hikes this year. If that happens, interest rates will increase to 1.75-2.00%, which will help reduce inflationary pressures.
At the moment, commodity markets are seeing an aggressive decline in quotes, primarily due to the situation in Ukraine. Brent fell to $100, while iron ore lost 7.7%. Copper also dipped by 2.5%, while aluminum decreased by 5.1%. The sharp drop in risk appetite also put pressure on commodities, but there is no need to draw a final conclusion yet, especially before the announcement of the results of the FOMC meeting.
NZD/USD
Three weeks have passed since the February meeting of the RBNZ. Back then, the central bank raised its rate by 0.25% and started quantitative tightening. The situation has become more hawkish now, and the growth of inflationary expectations has become stronger. If commodity prices continue to rise, the RBNZ may raise the rate by 0.5% in April and May. And if oil prices continue to increase, everything will turn up as well, since inflation is growing very quickly. To see a decline, the central bank has to act more aggressively than the Fed.
But that will widen the yield, in favor of New Zealand bonds. On the bright side, it will be a strong bullish factor for NZD/USD, which, at the moment, is bearishly overweight, but still showing signs of a reversal.
Latest report indicates that NZD's net short position fell 115m to -843m. The estimated price is turning up, which means demand is growing.
Presumably, NZD will find support at 0.6690/6710, with the nearest targets at 0.6890/6920 and 0.7030/50.
AUD/USD
Macroeconomic statistics in Australia are very positive. According to latest reports, consumption in Q4 rebounded strongly, consumer spending in Q1 remains strong and strong labor force points to a further decline in unemployment. The National Australia Bank even forecast that the unemployment rate will fall below 4% in March and to 3.5% by the middle of the year. That is likely to lead to higher wages, and thus to higher inflationary pressures.
Rising inflation, in turn, reinforces hawkish sentiment in the RBA. Now, the forecasts for the rate are: +0.15% in August, then +0.25% in September and November. This is about 1% less than the Fed's planned rate, which, at first glance, is an argument in favor of the US dollar. But the important thing here is that the inflation gap persists, which means that the real yield of Australian bonds will be higher during the year. For AUD/USD to grow, geopolitical tensions must decrease and commodity prices must bounce up. If both of these happen, the pair will jump to 0.80. If only one occurs, the growth will not be rapid, but will be stable.
For now, the CFTC report says the net short position remains at -5.6 billion, but the settlement price rushed up, reflecting the outstripping growth of Australian securities yields and capital inflow into the stock market.
Most likely, the quote will go up after a small correction. Support can be found at 0.7180/7200), with target at 0.7460/80.