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NZD/USD is currently trading at 0.6731 following a day of dollar weakness again as investors scale back positioning in the currency and take note of the out of control spread of the virus in America.

US COVID cases have now topped six million, with infection rates among college campuses accelerating and presenting challenges on the containment front. 

Leveraged funds sold USD for the seventh straight week while asset managers bought it after seven consecutive weeks of net selling.

The DXY weakened on Fed Chair Powell’s Jackson Hole address, indicating a dovish-for-longer shift in US monetary policy which will allow for flexibility in inflation targeting towards achieving their maximum employment goal.

The adoption of average inflation targeting and tolerance for inflation overshot suggests a number of bearish factors for the markets to consider when seeking a fair value in the greenback.

The markets are of the mind that it is now clear that interest rate increases are a very distant proposition and right away, markets will not be expecting a higher yield from the dollar for which it had enjoyed for so long.

Also, real USD rates will likely remain low if the Fed succeeds in generating higher domestic price pressures, something which has been supporting the price of gold which is negatively correlated to the US

This has been (and looks set to continue to be) a key feature of the market, and speaks of the NZD performing less well on crosses than against the USD, analysts at ANZ bank explained, adding:

Having been “out-doved” by the Fed, the RBNZ is likely going to up its own dovish rhetoric in coming weeks as it does what it can to lean into the NZD, which is so crucial for growth and inflation. Tomorrow’s speech by RBNZ Governor Orr thus presents downside risks for the Kiwi.

 

NZD/USD levels

 

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