FX.co ★ Demand for risk decreases before the US employment report, while commodity currencies are losing positions. Overview of USD, AUD, NZD

The ISM index of business activity in the US manufacturing sector increased to 62.1 p, which was slightly better than expected and gives reason to expect that the global economic recovery will continue at a steady pace. At the same time, the employment index declined to a 6-month low of 50.9p against the expected 61.5p, which is an alarming signal ahead of Friday's Nonfarm data, since there is a slightly higher probability of a slowdown in the US labor market.

On the other hand, the oil market continues to gradually rise, which is supported by the uncertainty of the OPEC + position regarding its readiness to increase supply amid expected growth in demand. The yields did not change significantly, and one should not expect strong movements before the release of the US employment report. The US dollar will try to recoup some of the losses amid the weak increase in tension.

NZD/USD

Business activity indexes slowed down in May but still showed a slightly higher result than in April. The result can be considered neutral for the New Zealand dollar.

The RBNZ improved its rate forecasts during the previous week, but the markets hardly reacted.

The growth of the long position on NZD has slowed down, the weekly increase is only 8 million. In fact, the estimated price is trying to decline within the framework of the status error, although it has not yet gone below the long-term average.

The New Zealand dollar is still in an upward trend, but the momentum has noticeably slowed down, and the threat of a downward correction has increased. The chances of testing the high of 0.7360 have significantly fallen again, and it is more likely that the consolidation will end with a downside exit from the range. If a correction wave is formed, the bears' target will be the range of 0.6690/6790, which is the main medium-term target.

AUD/USD

In April, the NAB retail sales index declined by 3.7%, while the index growth slowed down significantly to 1.4% y-o-y. The forecast for May is no better.

The slowdown is partly due to the high base effect of a jump in sales in 2020. The report notes a strong drop in sales in key categories, such as household goods and appliances, clothing, leisure goods, etc. We can also say that the optimism from large-scale vaccination and the opening of markets was not as deep and lasting as it seemed recently, and we are unlikely to see a strong growth in consumer activity, which means that we will not see an increase in inflation anytime soon.

The RBA also confirmed this unpleasant situation for the Australian dollar, as they noted the following in its final commentary on the results of the meeting that ended this morning: "Despite the rapid recovery of the economy and jobs, the pressure on inflation and wages decreased. In the main scenario, inflation is expected to be at 1% in 2021 and 2% in mid-2023."

As a result, the RBA sees no reason to make changes in monetary policy and even avoided revaluing the prospects for the rate, arguing that the yield of sovereign bonds has recently remained stable after rising at the beginning of the year. In other words, if the growth of yields is stopped, then it is too early to talk about an increase in the rate.

The Australian dollar did not even react to the positive data on GDP, which turned out to be better than forecasts – there was growth by 1.8% in the 1st quarter and annual growth rose to 1.1%. Investors are gradually abandoning the idea of the rapid growth of the AUD.

According to the CFTC, the long position in the futures market is liquidated, the weekly decline was 297 million, and the settlement price went below the long-term average.

Apparently, it is still early for the Australian dollar to make a deeper correction. The upward impulse has already faded and is no longer based on fundamental data. At the same time, the growth in commodity prices is not enough and has largely been recovered. A decline is likely after the consolidation period. We can note the two support levels of 0.7544 and 0.7420. The second one hardly corresponds to the lower border of the emerging descending channel and is the main target in the medium term.