Once again, the eyes of stock market investors seem to turn to American politicians. Last week, talks between the Democrats and the White House on another stimulus package for the economy in the face of the negative economic effects of COVID-19 broke down.
Currently, the politicians have announced that they are ready to resume negotiations. With hopes of a positive conclusion to these negotiations, the US S&P 500 index rises very close to the historic high.
U.S. Treasury Secretary Steven Mnuchin confirmed that the White House is open to resume negotiations with the Democrats. Goldman Sachs Bank has raised its U.S. GDP forecast for 2021 to 6.2 percent from 5.6 percent, following expectations that at least one COVID-19 vaccine will be widely distributed by the end of the second quarter next year.
Looking at events that may affect the foreign exchange market, we are looking forward to the Bank of New Zealand (RBNZ) decision on interest rates. According to the currency options market, the expected volatility for overnight options on the NZD/USD pair was to almost double - to 21.47. This may mean that investors are valuing very large fluctuations of the NZD/USD rate as early as 12 August at 04:00. According to the market consensus, the RBNZ is to leave interest rates unchanged. However, RBNZ may expand its QE program. The August statement on monetary policy will contain revised forecasts for the New Zealand economy. This also seems to be crucial for the NZD's rate.
Contrary to these expectations is the investment bank, Nomura. It believes that the RBNZ may not be as dovish as expected, as data from the New Zealand economy has recently been better than consensus and the number of COVID-19 cases is relatively low.
Meanwhile, Commerzbank is cutting its forecasts for the EUR/PLN pair at the end of 2020 from 4.40 to 4.30 and the end of 2021 from 4.55 to 4.50. According to the German bank, the key to the zloty is the very deep negative real interest rates due to record low central bank interest rates. What is more, inflation in Poland may fall in the coming months and then accelerate strongly next year, but the central bank may be reluctant to raise interest rates. According to Commerzbank, Poland's GDP is expected to fall by 4.1% in 2020 to rebound by 2% in 2021.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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