The AUD is currently on the radar of a few account managers at BlackBull Markets. Being based in New Zealand, our closest neighbour's currency is a reasonably popular instrument to follow. News affecting the AUD will typically circulate the office quickly.
The ever-present influence on global markets, Covid lockdowns, are once again affecting Australian business and everyday life. New South Wales, the country's most populated region, is currently under lockdown to curb the spread of the Delta variant. Australian Prime Minister Scott Morrison recently extended the length of the lockdown for another week. Reports are that authorities are struggling to contain the far more virulent strain, and stricter and lengthier lockdown measures could soon be enacted.
From a technical perspective, on the daily chart, an interesting situation is developing.
Let's look at the Fib retracement that the pair has followed since its high in February 2021.
The recent downwards trend appears to have slowed on the Daily chart but is still definitely drawing down. A brief period of consolidation formed in between the 38.2% and 61.8% Fib level. The pair is trading well below the 50.0% level and is much closer to the latter than the former.
The general market sentiment is that the AUD is still a short. At least this was the call when the AUD was closer to $0.80 per dollar. The 61.8% Fib level is the next target for the AUD bears if the short sentiment holds today. At this level, the AUD would be back in a territory below 0.73800, representing a six-month low for the AUD.
The AUDUSD enjoyed a good deal of 2020 in the zone between 61.8% and 100%. If the pair were to cross the 61.8%, it could be some time before we see some price action outside this boundary.
The ASX 200 was an anomaly over Thursday Asian session. It was one of the few major indices that closed higher than it opened. Since this time, stocks have sold off in Europe and the US. The sell-off was particularly heavy in Europe, with the FTSE down by 1.68%, The CAC down by 2.01%, and the DAX down by 1.73%. As it stands, ASX200 futures are trading down, indicating that the Australian index will open on Friday trading approximately 40 points down or 0.67%.
Are we going to see the NZD/USD at 0.74? With Joe Biden most likely to be the next President, many predict a de-dollarization to occur as the opportunity cost of investing in the United States is expected to decrease, placing pressure on the greenback downwards.
This pair is interesting, as both countries are on the opposite spectrum regarding their handling and current situations with the Coronavirus. In New Zealand, the Coronavirus is virtually nonexistent, with citizens having relatively no restrictions.
In contrast, the Coronavirus in the United States continues to ravage the country, with cases yesterday topping 130,000. Biden promises to put the Coronavirus front and center, as he believes that the only way to a successful economic recovery is to eliminate the Coronavirus.
However, both countries’ central banks have been on a quantitating easing spree to prop their respective economies. Research done by Bloomberg alongside data from the Reserve Bank of New Zealand shows that the RBNZ’s ownership of government bonds has risen from 6% to 37% in the span of seven months. Many compare this as a “Japanification” in New Zealand, as the Bank of Japan underwent a similar process – only they started at 11% ownership, and it took them three years.
Similarly, with the Federal Reserve, Jerome Powell has taken the central bank from 5 Trillion in Assets to just around 7 Trillion, supporting the bounce bank in asset prices worldwide.
In general, central banks and governments are okay with debt growth and can sustain large deficits for decades as long as GDP grows faster than the debt. Regarding New Zealand and the United States’ borrowing and their respective currencies, the ultimate strength is from the underlying recovery relative to one another.
As the United States’ recovery from the Coronavirus arguably has not started, investors and traders may look elsewhere to park their money.
In a broader sense, investment into the United States may be delayed/canceled due to the current Coronavirus situation or worse; investors may look elsewhere to park their investment. This is where New Zealand comes into play. As the country is well underway in its recovery, investors may be looking at New Zealand as a place to park their capital.
A survey of 700 global business leaders by Bloomberg ranked New Zealand as the nation that has best handled the pandemic and where they would be most confident investing in. Furthermore, with negative interest rates predicted next year alongside tools to allow retail borrowing near the interest rates, alongside their positive effects most likely to be felt during a recovery, investors will inherit conditions that are most likely to be favorable for their investment.
As far as technical go, the NZD/USD is undergoing a possible head and shoulders on a longer-term timeframe, with the price level hovering around 0.68290, which is around a 100% Fibonacci retracement level. If net-investment into New Zealand is larger and faster relative to the United States, we may see the NZD/USD rocket price up to 0.74, not seen since the start of 2019.