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  • NZD/USD is rising for the second straight day on Tuesday.
  • Risk flows continue to dominate financial markets ahead of US election.
  • US Dollar Index falls sharply after closing above 94.00 on Monday.

The upbeat market mood at the start of the week helped the NZD/USD pair close in the positive territory. With risk flows continuing to dominate the financial markets and the USD struggling to find demand, the pair extended its rally and was last seen gaining 0.66% on the day at 0.6674.

DXY drops below 94.00 on Tuesday

The US Dollar Index (DXY) climbed to its highest level since late September at 94.28 on Monday but profit-taking ahead of the US presidential election seems to be weighing on the greenback. At the moment, the DXY is down 0.42% on the day at 93.63.

Previewing the US presidential election, “markets prefer a decisive result, preferably Biden winning the White House and Democrats flipping the Senate, an outcome that would enable fiscal stimulus,” says FXStreet analyst Yohay Elam. A rally in stock markets is likely to keep the USD under pressure and help NZD/USD continue to push higher.

“The second-best option is a victory for Trump. On the other side, a Biden WH and a GOP-controlled Senate could result in a small relief package. The nightmare scenario is a protracted election process that results in a contested election and a constitutional crisis,” Elam added. 

How three US election outcomes (and a contested result) could rock the dollar

2020 US Elections: Equities in three scenarios

Nevertheless, the first results are expected to arrive around 0130 GMT on Wednesday, suggesting that volatility is likely to pick up during the Asian trading hours.

Meanwhile, the labour market report from New Zealand will be featured in the economic docket as well. Investors expect the Unemployment Rate to increase to 5.4% from 4% in the second quarter and a large divergence could trigger a near-term market reaction.

Technical levels to watch for