Forex Market: NZD/USD rises to a fresh 85-week high as investors assume lower probability of negative interest rates by RBNZ

NZD/USD rose more than 1% on Wednesday to highs not seen since late March 2019, as market players trimmed bets that the Reserve Bank of New Zealand would introduce negative interest rates. Additionally, the US Dollar paused its rally against peers as initial optimism in regard to COVID-19 vaccine progress was offset by uncertainty about the vaccine’s distribution.

“The dollar recovery is on hold for now because, when you look at the details, there are still a lot of hurdles to clear before any vaccine is rolled out,” Junichi Ishikawa, senior foreign exchange strategist at IG Securities, was quoted as saying by Reuters.

“However, the dollar is supported by rising Treasury yields, which should help the dollar make another push higher before year’s end.”

Meanwhile, at its policy meeting earlier Wednesday, the Reserve Bank of New Zealand kept the official cash rate at a record low level of 0.25%, in line with market expectations. The bank’s Large Scale Asset Purchase programme was kept at NZD 100 billion and a new policy tool, Funding for Lending Programme (FLP), was announced. Starting in December, the FLP will reduce borrowing costs for banks, while encouraging more loans.

During the press conference that followed the bank’s policy decision, RBNZ Governor Adrian Orr said that economic activity in the country since August had been more resilient than previously assessed, which was taken by investors as an indication that the probability of negative interest rates had decreased.

As of 9:00 GMT on Wednesday NZD/USD was gaining 0.93% to trade at 0.6883, after earlier touching an intraday high at 0.6904, or a level not seen since March 27th 2019 (0.6914). The pair has extended gains to 4.15% so far in November, following a mere 0.03% dip in October.

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 10.3 basis points (0.103%) as of 7:15 GMT on Wednesday, up from 7.3 basis points on November 10th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.6821
R1 – 0.6839
R2 – 0.6858
R3 – 0.6875
R4 – 0.6893

S1 – 0.6802
S2 – 0.6785
S3 – 0.6766
S4 – 0.6747