Forex Market: NZD/USD eases from seven-month highs as US Dollar rebounds from a two-year low against peers

NZD/USD came off fresh seven-month highs on Tuesday, as the US Dollar rebounded from a two-year trough against major peers due to eased selling pressure ahead of the Federal Reserve’s two-day policy meeting and a political decision on the next US fiscal rescue plan.

Despite that the Fed is expected to keep rates intact, a speculation has emerged that the central bank could introduce a change in policy emphasis.

“Officials at the Fed have started talking regularly about…allowing inflation to rise above target a bit before tightening,” Capital Economics’ market economist Oliver Jones said.

According to Jones, since greater tolerance for inflation may mount additional pressure on US real yields, it may also push the US Dollar further down.

Meanwhile, the US Congress has a deadline until Friday to extend unemployment benefits. If the huge fiscal rescue package currently being negotiated between Democrats and Republicans passes, it may provide support to the greenback.

Democrats have proposed a $3 trillion package, while Republicans have proposed a $1 trillion plan, which would cut an expanded unemployment benefit from $600 per week to $200 per week.

As of 6:55 GMT on Tuesday NZD/USD was edging down 0.49% to trade at 0.6652, after earlier touching an intraday high of 0.6703, or a level not seen since January 3rd (0.6703). The major pair advanced 1.32% last week, which marked its best performance since the business week ended on July 3rd. NZD/USD also looked set for a fourth straight month of gains.

On today’s macroeconomic front, confidence among US consumers probably worsened in July compared to a month ago, with the corresponding index coming in at 94.5, according to market expectations. In June, the gauge was reported at 98.1. The Conference Board research group will release the official data at 14:00 GMT.

Bond Yield Spread

The spread between 1-year New Zealand and 1-year US bond yields, which reflects the flow of funds in a short term, equaled 10.6 basis points (0.106%) as of 6:15 GMT on Tuesday, or unchanged compared to July 27th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.6664
R1 – 0.6714
R2 – 0.6743
R3 – 0.6792
R4 – 0.6841

S1 – 0.6635
S2 – 0.6586
S3 – 0.6557
S4 – 0.6528