NZD & AUD adding on fast recovery and hopes for further BoJ’s QE

Indices in Japan and Hong Kong are cautiously moving upwards against the backdrop of dollar pressure against Asian and Oceanian currencies. In general, markets are moderately positive and markets these regions are experiencing a stronger inflow, in anticipation of a smaller downturn and a rapid recovery.

We have previously seen strong employment growth in Australia and a jump in retail sales in New Zealand, encouraging demand for local currency and markets.

The Australian dollar trades at 0.7370 on Friday morning, which is the peak area for the end of August 2020 and December 2018. It has been adding more than 5.2% since the beginning of the month. Growth above 0.7400 will be an exit into the area of more than two-year highs and will cross out the slump of the China-US trade wars.

The New Zealand dollar crossed 0.7000 this week and is at 29-month highs, adding more than 6.2% this month.

These currencies are in demand from investors in Japan, a country with chronically low-interest rates. This morning, this interest may have been further fuelled by weak macroeconomic data. Prices in Tokyo increased the decline in November to -0.7% YoY, compared to -0.3% a month earlier.

Easier inflation strengthens expectations of new monetary policy easing or the extension of existing QE programmes. This pushes bond prices upwards, creating retail and institutional investors out of them and feeding demand for foreign assets and shares of domestic companies. In turn, this is causing a very moderate growth in yen vs dollar, compared to its retreat against a wide range of peers since early November.

From June to mid-November, we saw an equally rapid advance of the Chinese yuan. Its growth against the dollar has stagnated at 6.50. Investors are starting to fear that China will restrain currency growth, which is harming export competitiveness and inflates prices on financial assets.

As a result, players have switched to other assets and currencies in the region. Such stories are united by the very moderate economic damage caused by the coronavirus pandemic. However, it is still not clear, whether the US or Europe will recover more quickly. An accurate answer to this question will determine the future trend of the dollar.

The FxPro Analyst Team