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08.03.202210:52 Forex Analysis & Reviews: World economy under threats of collapse amid wave of madness in commodity markets; Overview of USD, NZD, and AUD

The main trends remain on Tuesday morning - most stock indices are under strong pressure, the U.S. dollar is in demand as the main reserve currency, commodities are hitting records. Nickel literally added 90% to Friday's close in just a day, other metals demonstrate similar dynamics - aluminum, palladium, zinc. Oil jumped to almost $140 at the opening of trading in the Asia-Pacific region on Monday, but the subsequent small pullback that followed slightly dampened the panic.

We should not expect a painless way out of the current geopolitical impasse. Russia intends to achieve all the declared goals from the military operation in Ukraine, while Ukraine, in turn, continues to rely on the support of Western countries. Sanctions pressure on Russia has effects in both directions at once, gas at the Dutch hub yesterday exceeded $3,800/1,000 cubic meters, which is not just a speculative increase, but real madness.

It should be noted that against the background of this madness, inflationary expectations continue to grow, which, together with the risk of developing energy and raw material crises, is pushing the world towards stagflation and a new global recession.

NZDUSD

The ANZ price index for February reached an all-time high, the Global Dairy Trading (GDT) auction also set a new record, so even a small increase in import prices will not hurt exporters.

Exchange Rates 08.03.2022 analysis

Economic activity, in contrast to prices, declined slightly. Demand for housing construction has peaked, business sentiment and consumer confidence are also negative in February, all with sky-high inflationary expectations and price forecasts for businesses. It is increasingly likely that inflation will reach 7% or even go higher.

Real yields in New Zealand are worse than in Australia, however, expectations for the RBNZ rate are high, it is expected that the RBNZ may raise the rate by 50 basis points before other central banks do, giving the NZD an edge in the foreign exchange market.

The NZD net bearish position increased by 180m to -957m in the reporting week, the bearish edge is still relevant, the settlement price is held above the long-term average, but the advantage is not too obvious.

Exchange Rates 08.03.2022 analysis

NZDUSD is trading near the middle of the bearish channel, the probability of exiting the channel up is slightly higher than down. We expect another attempt to consolidate above 0.6880, then the target is 0.6990, taking into account the weakness of the impulse, we cannot count on a strong movement.

AUDUSD

Australian business was optimistic about February, business conditions improved from 3 pts to 9 pts, confidence from 4 pts to 13 pts, after falling above the long-term average in January. The recovery took place against the backdrop of strong employment growth.

Exchange Rates 08.03.2022 analysis

Forecasts on further actions of the RBA have also changed. Now 3 increases are predicted this year, the first in August (+15 pts) and then twice more, by the end of the year the rate is expected to reach the pre-pandemic 0.75%. The NAB suggests that macroeconomic forecasts also need to be changed, now unemployment is expected to be below 4%, which is much more optimistic than the RBA sees so far. Inflation in the middle of the year is expected at 3.5%.

Thus, in terms of the rate, the RBA will lag behind the Fed, but in terms of real yield, taking into account inflation, it will outperform. If we add the explosive rise in commodity prices to the overall positive picture, then we can assume that the Aussie will have an advantage in the foreign exchange market over the U.S. dollar.

The net short position in AUD was down 389m to -5.6bn, the bearish edge is still strong but on a downward trend. The settlement price is directed upwards.

Exchange Rates 08.03.2022 analysis

AUDUSD pulled back down from the 0.7440 resistance, the pullback is expected to be shallow. Currently, AUDUSD is near the former border of the 0.7290 channel and may find support here. If geopolitical risks increase significantly in the coming days, then the pullback may be a little deeper, but hardly below 0.72. We are waiting for another trip to the 0.7440/60 zone with an attempt to go higher, the target is 0.7560.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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