NZD/USD clings to gains above 0.7100 ahead of US data, FOMC policy announcements

• NZD/USD is rising after struggling to find direction on Tuesday.
• New Zealand Treasury revises up 2021 growth forecasts.
• US Dollar Index pushes lower toward 91.00 ahead of key events.

The NZD/USD pair fluctuated in a tight range below 0.7100 and closed little changed on Tuesday. With risk flows restarting to dominate the financial markets on Wednesday, the pair gained traction and rose to 0.7121. As of writing, NZD/USD was up 0.35% on the day at 0.7112.

Earlier in the day, New Zealand’s Treasury revised its 2021 GDP growth expectations to +1.5% from -0.5% in the previous forecast. Additionally, the Half-Year Economic and Fiscal Update (HYEFU) showed that the unemployment rate is seen at 6.9% in the last quarter of 2020, compared to 7.8% previously, and helped kiwi gather strength against its rivals.

USD selloff remains intact

On the other hand, US stimulus hopes, Brexit optimism and the coronavirus vaccine rollout continue to provide a boost to risk-sensitive assets and hurt the greenback. At the moment, the US Dollar Index is at its lowest level since April 2018 at 90.17, losing 0.33% on a daily basis. Reflecting the upbeat market mood, major European equity indexes are rising between 0.9% and 1.5%.

Later in the day, Retail Sales data and the IHS Markit’s preliminary Manufacturing and Services PMI reports for December will be featured in the US economic docket. More importantly, the US Federal Reserve will announce its Interest Rate Decision and release the Monetary Policy Statement alongside the updated Economic Projections.

Previewing the FOMC’s December meeting, “without a QE composition change, the US dollar may rebound modestly but assuming the guidance is explicit and strongly-worded like we expect, the dollar is set to remain weak, close to current levels through the remainder of the year and into 2021,” said analysts at MUFG Bank.

Technical levels to watch for