Forex Market: NZD/USD trades near two-week highs ahead of Fed’s policy decision, New Zealand reports largest current account surplus ever

NZD/USD extended gains from the previous trading day and remained close to two-week highs during early European session on Wednesday, as market players awaited the outcome from the Federal Reserve’s first policy meeting since it adopted a more accommodative approach to inflation, while New Zealand registered the largest current account surplus on record.

Last month the US central bank announced a shift in its monetary policy framework, according to which it will seek to achieve an average inflation rate of 2% over time and a “broad-based and inclusive” growth in employment.

Investors will be also focusing on the bank’s economic projections, especially its inflation forecasts.

“The 3 to 3.5-year projection horizon will give (Fed members) an opportunity to indicate how big an overshoot they expect will be required to get to the 2% average inflation target,” Steve Englander, head of Forex research at Standard Chartered, said.

“It will also give (them) an opportunity to indicate how much of an overshoot they are willing to tolerate.”

Meanwhile, on the data front, Statistics New Zealand reported earlier on Wednesday that the nation’s current account had produced the largest surplus on record during the second quarter, NZD 1.83 billion, as the coronavirus-related lockdown measures led to a sharper drop in imports compared to that in exports. New Zealand had reported a deficit of NZD 1.04 billion on its current account during Q2 of 2019.

As of 6:54 GMT on Wednesday NZD/USD was edging up 0.30% to trade at 0.6733, while being in proximity to yesterday’s almost two-week high of 0.6737. The major pair has dipped a mere 0.03% so far in September, following five straight months of gains.

In terms of economic calendar, today market players will be paying attention to the monthly report on US retail sales at 12:30 GMT. Analysts on average expect a 1.0% monthly growth in sales in August, following an increase by 1.2% in July.

In addition, core retail sales, which exclude large ticket prices and historical seasonality of automobile sales, are expected to increase 0.9% in August, following a 1.9% monthly gain in July.

At 18:00 GMT the Federal Reserve is scheduled to announce its decision on monetary policy. The Federal Open Market Committee (FOMC) will probably keep the target range for the federal funds rate intact between 0% and 0.25% at its two-day policy meeting, scheduled to be concluded today, according to market expectations.

The policy decision will be followed by a press conference with Fed Chair Jerome Powell at 18:30 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 5.6 basis points (0.056%) as of 6:15 GMT on Wednesday, down from 6.4 basis points on September 15th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.6711
R1 – 0.6738
R2 – 0.6764
R3 – 0.6791
R4 – 0.6819

S1 – 0.6685
S2 – 0.6658
S3 – 0.6633
S4 – 0.6607

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