NZD/USD struggles to recover from multi-week lows, trades around 0.6550

• NZD/USD fell sharply during Asian session on Wednesday.
• RBNZ left the policy rate unchanged, expanded its QE.
• US Dollar Index turns south after climbing higher toward 94.00.

The NZD/USD pair came under strong bearish pressure during the Asian trading hours and slumped to its lowest level in more than three weeks at 0.6528. Although the pair recovered modestly with the USD struggling to preserve its strength, the pair is still down 0.33% on the day at 0.6555.

Kiwi weakens as RBNZ turns dovish

Earlier in the day, the Reserve Bank of New Zealand (RBNZ), as expected, left its policy rate unchanged at 0.25%. However, in a surprising move, the RBNZ announced that is increased the size of its quantitative easing (QE) program to 100 billion NZD. In its policy statement, the RBNZ noted that the package of additional monetary instruments will remain in “active preparation.”

Commenting on the RBNZ’s policy announcements, “it’s difficult to imagine a more dovish outcome than what we have seen,” said ANZ analysts. “Given how dovish the tone was, we see a real risk that the NZD weakens further in coming weeks as the gravity of today sinks in.”

On the other hand, the US Dollar Index (DXY) lost its strength after advancing to a nine-day high of 93.90 during the early European session. At the moment, the DXY is registering small daily losses at 93.55, allowing the pair to limit its losses for the time being. Later in the day, the Consumer Price Index (CPI) data from the US will be looked upon for fresh impetus. 

Technical levels to watch for