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  • NZD/USD is clinging to small daily gains above 0.6800.
  • Monday’s risk rally loses momentum ahead of American session.
  • US Dollar Index stays calm below 93.00 on Tuesday.

The NZD/USD pair advanced to its highest level since March 2019 at 0.6856 on Monday before closing at 0.6817. With the financial markets staying relatively quiet in the absence of significant fundamental drivers, the pair seems to have gone into a consolidation phase. As of writing, NZD/USD was up 0.2% on the day at 0.6831.

Risk flows took control of markets at the start of the week after Pfizer announced that the coronavirus vaccine it has been developing with BioNTech was more than 99% effective in the latest trials. Major global equity indexes closed sharply higher and the 10-year US Treasury bond yield surged to its highest level since March to confirm the risk-on mood.

Although the NZD capitalized on the upbeat market mood, the greenback gathered strength on rising T-bond yields and forced the pair to erase some of its daily gains.

At the moment, the 10-year US T-bond yield is up 1.5% on the day and the US Dollar Index is staying virtually unchanged on the day near 92.80.

Focus shifts to RBNZ

In the early trading hours of the Asian session on Wednesday, the Reserve Bank of New Zealand (RBNZ) will announce its Interest Rate Decision and publish the Monetary Policy Statement. Markets expect the RBNZ’s policy rate to remain unchanged at 0.25%. 

Previewing the RBNZ meeting, “the focus of Monetary Policy Statement will be the upcoming Funding for Lending (FLP) programme, including design details and deployment date,” noted ANZ analysts. “We expect the programme to have relatively few strings attached in order to facilitate take-up, and to be priced at or near the OCR. Our best guess is that the programme might be $30-50bn in size. We do not expect any changes to the OCR or the LSAP (QE) programme.”

Technical levels to watch for