FX.co ★ NZD is underestimated, while AUD has a little more problems. Overview of USD, NZD, AUD

A strong report on US employment contributed to the growth of optimism in the markets. On Monday, trading was carried out with a slight increase in demand for risky assets, but the main focus is on how the Fed members comment on current trends. The first to speak was the CEO of the Fed Atlanta, Bostic, who made a "very encouraging" report and in his opinion, the range of decision-making is from October to December, but if the next report is as strong, then it is possible to move a little closer, that is, to September.

In fact, Bostic did not say anything new, but only summed up market expectations. Another thing is important – until recently, Bostic was considered dovish, but now, we can observe a clear shift in his position towards more decisive actions. Apparently, the Fed shows confidence that it keeps the situation under control.

Today's trading is likely to be quite calm, as the most important driver will appear only on Wednesday. Judging by the fact that the yields of 5-year TIPS bonds have stopped rising, it is unlikely that we will see a continuation of the inflation trend.

According to the forecast, there will be a slight decline in inflation in July. If they come true, then the US dollar will lose reasons to further grow. But if inflation turns out to be higher than forecast, this will increase the chances of an announcement of the end of QE already at the September meeting, in which case the dollar will strengthen across the entire spectrum of the currency market.

NZD/USD

New Zealand's economy continues its strong recovery. As follows from the data published last week, the employment in the 2nd quarter is growing steadily. The unemployment rate unexpectedly declined from 4.6% to 4.0% against the forecast of 4.5%. Moreover, impressive growth is noted in wages – labor costs increased by 0.9% q/q, such a pace is generally uncharacteristic for New Zealand.

It seems that the stability of the labor market already exceeds the criteria set by the RBNZ, and considering the growth of core inflation in Q2, it seems that both RBNZ targets have been achieved and even exceeded. The probability that the RBNZ will raise the rate three times this year, bringing it to 1.0%, is getting higher.

Over the reporting week, the long position in the NZD fell by 122 million, namely to -23 million. Neither side has an advantage. The target price is still above the long-term average, but the momentum looks weak.

It can be assumed that the New Zealand dollar is undervalued and its growth is inevitable in the coming months. A decision on the rate is expected at the meeting on August 18, that is, there is only a week left, and only a strong report on US consumer inflation in July, which will be released on Wednesday, can prevent the growth of the NZD/USD pair.

The NZD is trading in a range. Testing the upper limit of the channel 0.7150/70 is likely to be postponed for a while. New Zealand T-bills yields are growing faster than UST, so the probability of an upward breakdown remains high.

AUD/USD

The July business activity survey showed a decline in business confidence: both the market situation and confidence deteriorated sharply during the month. In many respects, the negativity is due to the newly adopted methods of isolation from COVID-19 in some states. Forecast indicators have also declined, and in general, the study shows that the strength of the business sector observed in early-mid-2021 has weakened amid new disruptions in the economy, but has not yet fallen to the lows observed in early 2020.

All industries are in the red, except for mining. There is a possibility that Australia's GDP will fall into the negative zone in the third quarter, which is almost inevitable if the covid restrictions remain. If they are removed, which is expected, since seasonal viral activity decreases with the end of winter, then recovery can be very fast again.

Australian dollar's net short position is only behind the Japanese yen in volume, reaching -3.053 billion after a weekly change of -122 million. Long-term investors do not see any reason for the AUD growth. The estimated price is below the long-term average, but there are almost no dynamics.

The consolidation just above the local low of 0.7288 is expected to end. The nearest target is 0.7220/40, while the long-term is set at 0.6990/7060. There are no reasons to revise this target.