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Today, the Chinese Central Bank decided to lower the base credit rate to 4.05% from 4.15%. This action of the regulator is connected with the desire to support economic growth in the country, not only in the context of the coronavirus epidemic, but also later, when this attack ends.
The decision of the NSC is reasonable and logical. According to forecasts that have already appeared, the growth rate of the Chinese economy in the first quarter may be reduced from the last value of GDP 6.0% in the 4th quarter of last year to 3.0%. Of course, the reason for this fall is a sharp decline in production activity in the country since the beginning of this year due to the coronavirus epidemic, which caused a significant number of companies, both public and private, to stop working. And the fact that the drop may be noticeable, says a lot about the statement of Apple Inc this Monday regarding a strong reduction in profit expectations due to reduced sales of its products against the background of falling production in China.
Given these prospects, we believe that the Australian and New Zealand dollars will be under strong pressure, since the economies of Australia and New Zealand are strongly linked by exporting their products to the Middle Kingdom.
Such prospects are perfectly confirmed by the dynamics of sentiment of large investors (Large Traders) in futures contracts for these currencies. So, according to an indication of investor sentiment (Commitments of Traders), the decline in the March futures on Australian and New Zealand dollars can only increase. Such an attitude of the market towards their prospects, and through them to the underlying assets - the Australian and New Zealand dollars in the currency market, is justified because a strong slowdown in the growth of the Chinese economy will force the RBA and the RBNZ, most likely, to resort to measures to protect producers in Australia and New Zealand. Also, regulators will most likely be forced to soften their monetary policies to stimulate economic growth.
In this situation, the American dollar will definitely enjoy support in pairs with these currencies, since the US economy, in the opinion of the Fed, and more precisely its leader J. Powell and other members of the American Central Bank, is doing fine. The minutes of the last meeting of the Federal Reserve, released on Wednesday, clearly confirms this.
Given the current situation in the markets and around the effects of coronavirus on the Chinese economy, we believe that the US dollar will receive general support in the markets in general and against the Australian and New Zealand currencies in particular.
Forecast of the day:
AUD/USD is trading above the level of 0.6640. We believe that a decrease below this level will lead to a continued fall in prices to the level of 0.6600.
NZD/USD pair is trading below the level of 0.6375. We believe that it will continue to decline to 0.6315, and then, probably, to 0.6300.
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