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  • NZD/USD struggles to extends its recovery, trades below 0.6600.
  • New Zealand reported its first coronavirus cases in more than three months.
  • US Dollar Index rebounds from daily lows on surging T-bond yields.

The NZD/USD pair rose to a daily high of 0.6630 in the early trading hours of the European session on the back of risk-on flows but lost its traction on coronavirus headlines. With the greenback showing some resilience against its peers in the second half of the day, the pair continued to erase its gains and turned flat on the day near 0.6590.

Focus shifts to RBNZ meeting

Earlier in the day, New Zealand reported its first confirmed coronavirus infections in 102 days and announced that it will reintroduce COVID-19-related restrictions, triggering a kiwi selloff. On Wednesday, the Reserve Bank of New Zealand (RBNZ) will announce its rate decision and will release its policy statement.

Previewing the RBNZ event, “we cannot rule out the possibility of negative interest rates in time but that will come with considerable baggage and we do not expect the RBNZ to employ that option for now,” UOB analysts said. “We expect QE to be expanded to a cap of NZD90 billion by August. Another option for the RBNZ is to adjust the QE programme to a type of ‘yield curve control’.”

RBNZ Preview: Eight major banks expectations.

On the other hand, the US Dollar Index (DXY), which came under renewed bearish pressure amid risk-on flows, rebounded modestly, causing NZD/USD to stay in the negative territory. Supported by an 11% upsurge witnessed in the 10-year US Treasury bond yield, the DXY recovered slightly and was last seen still losing 0.17% on the day at 93.45.

Technical levels to watch for