Forex Market: NZD/USD hits a 17 1/2-month high, pair looks set for first gain in three weeks

NZD/USD extended gains from the previous five trading days and hit a fresh 17 1/2-month high on Friday as a less steep than expected contraction in New Zealand’s Gross Domestic Product in Q2 added to expectations that the Reserve Bank of New Zealand might adopt a wait-and-see approach at its upcoming policy meeting on September 23rd.

In August, the central bank expanded its Large Scale Asset Purchase (LSAP) program to NZD 100 billion and noted that “a package of additional monetary instruments must remain in active preparation.”

New Zealand’s economy shrank at an annual rate of 12.4% during the second quarter, which compares with market expectations of a 13.3% contraction.

Still, the RBNZ had also noted that “output and employment recover sooner than projected in our May Monetary Policy Statement.”

Meanwhile, the US Dollar weakened against a basket of major peers on Thursday and remained subdued on Friday after US initial jobless claims remained at high levels last week, according to the latest data, while housing starts and business activity in Philadelphia decreased. A drop in US equities yesterday also contributed to USD weakness.

As of 7:00 GMT on Friday NZD/USD was gaining 0.61% to trade at 0.6796, after earlier touching an intraday high of 0.6797, or its strongest level since April 4th 2019 (0.6800). NZD/USD was set to register its first gain in the past three weeks, while being up 1.95%. The major pair has risen 0.91% so far in September, following five straight months of gains.

On today’s economic calendar, a report at 12:30 GMT by the Bureau of Economic Analysis may show that US current account deficit widened to $157.9 billion during the second quarter from $104.2 billion in Q1. The latter has been the smallest deficit since Q2 2018.

The monthly survey by Thomson Reuters and the University of Michigan may show that consumer confidence in the United States improved in September. The preliminary consumer sentiment index probably rose to 75.0 in September from a final 74.1 in August. Last month, the sub-index of current economic conditions was revised up to 82.9 from a preliminary 82.5, while the sub-index of consumer expectations was revised up to 68.5 from a preliminary 66.5. The preliminary report is due out 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 7.4 basis points (0.074%) as of 6:15 GMT on Friday, or unchanged compared to September 17th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.6730
R1 – 0.6784
R2 – 0.6814
R3 – 0.6868
R4 – 0.6923

S1 – 0.6700
S2 – 0.6646
S3 – 0.6616
S4 – 0.6587