The correction of January’s USD index indicates that investors doubt the victory over the pandemic. Confidence can only be restored by successful vaccination. Let us discuss the Forex outlook and make up NZDUSD, AUDUSD and USDNOK trading plans
Fundamental New Zealand Dollar, Australian Dollar, Norwegian Crown forecast for six months
When investors are not worried about anything, the monetary policy takes the lead in Forex. But as soon as there are fears of a global scale, the new market drivers appear. From 2018 to 2019, market was focused on trade wars, in 2020 on the pandemic. I don’t think COVID-19 will be quietly eradicated. On the contrary, it will continue to terrorize financial markets in 2021. But you need to look at the coronavirus from a different angle. Last year, investment plans were influenced by the speed of its spread and the amount of damage caused to the economies of individual countries and regions. This year the efficiency of the vaccination process will be decisive in the world economy.
You can talk as much as you want about the reasons for the USD strengthening in early 2021. However, the reduction of speculative short positions on the greenback only occurs if investors begin to doubt their own plans’ feasibility. Most of them hoped that defeating the pandemic would trigger explosive growth in global GDP and international trade and also support both risky assets and the currencies of export-oriented countries and regions, including the euro. Such a scenario is only possible if vaccines are introduced quickly and successfully. Alas, there are still numerous problems. By the end of 2020, the United States vaccinated only 2.8 million people, but the original plan included 20 million people. By mid-January, they have 25.4 million doses at their disposal, but only 8.9 million Americans received the vaccine. However, the vaccination campaign’s speed in the United States is one of the highest in the world.
The number of vaccinations per 100.000 people in different countries
Source: Nordea Markets.
There is certainly some good news. Joe Biden has promised to produce the vast majority of COVID-19 vaccines and speed up its delivery, while the European Union will double purchases of BioNTech/Pfizer. I am an optimist and sincerely believe that everything will end well. The only question is when?
Earlier, investors assumed that the first quarter of the year would be challenging. But already we are expecting rapid GDP growth in the second or third quarter. In November-December, they made bets on the emerging markets’ currencies and bought EURUSD. However, the slow vaccination process makes them reconsider their plans in January. What if the second quarter turns out to be tough? Is it too early to buy euros and EM assets? Perhaps their time will come in March-April, and now it would be worthwhile to return to the US dollar?
In my opinion, only a complete failure of the vaccination process can break the USD index downtrend. I do not want this to happen. Otherwise, the correction will end sooner or later, and the trend will begin to recover. As a result, a question about the purchases will arise. The sensitivity of the various currencies to vaccine introduction will provide guidance.
Currency sensitivity to vaccine news
Source: Nordea Markets.
The good news about vaccinations acts as a catalyst for the growth of the New Zealand and Australian dollars, the Norwegian crown, and emerging market currencies. In this…