Forex Market: NZD/USD hits a fresh one-month low as US Dollar continues grinding higher, RBNZ hints at negative rates next year

NZD/USD continued to edge lower on Wednesday, while touching a fresh one-month low, as the US Dollar strengthened to a two-month high against major peers, while the Reserve Bank of New Zealand kept monetary policy unchanged, but indicated that interest rates might be taken below zero next year.

The RBNZ kept the official cash rate at a record low level of 0.25% at its policy meeting earlier on Wednesday, in line with market expectations, and also maintained its Large Scale Asset Purchase (LSAP) programme up to NZD 100 billion.

However, policy makers hinted that interest rates could be reduced below zero in 2021, as the COVID-19 pandemic and travel restrictions associated with it might have a considerable long-term negative impact on New Zealand’s economy. The RBNZ Committee also noted that the country’s banking system was set to be operationally prepared for negative interest rates by the end of 2020.

Meanwhile, the US Dollar Index (DXY) rose to 94.25 earlier on Wednesday, its strongest level since July 27th (94.42), due to concerns over a second wave of the novel coronavirus in Britain and Europe. Additional support also came after a report showed US existing home sales had surged to a seasonally adjusted annual level of 6.0 million units in August, the highest since December 2006.

Yet, uncertainty surrounding US presidential election in November is seen as inducing further USD volatility.

As of 6:50 GMT on Wednesday NZD/USD was edging down 0.40% to trade at 0.6604, after earlier touching an intraday low of 0.6592, or its weakest level since August 26th (0.6541). The major pair has retreated 1.91% so far in September, following five straight months of gains. Year-to-date, NZD/USD was down 1.90%.

In terms of economic calendar, at 14:00 GMT Federal Reserve Chair Jerome Powell is expected to testify before the House of Representatives’ Select Subcommittee on the Coronavirus Crisis in relation with the bank’s response to the COVID-19 pandemic.

At 15:00 GMT Fed President for Chicago Charles Evans is to participate in a webcast event hosted by MNI and entitled “Outlook for the U.S. Economy”.

And at 18:00 GMT Fed’s Vice Chair for Supervision Randal Quarles is to speak on Economic Outlook at the Institute of International Bankers Annual Meeting via livestream.

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 Wednesday, down from 7.7 basis points on September 22nd.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.6647
R1 – 0.6671
R2 – 0.6712
R3 – 0.6736
R4 – 0.6761

S1 – 0.6606
S2 – 0.6581
S3 – 0.6541
S4 – 0.6500