Forex Market: NZD/USD remains under pressure as RBNZ still sees balance of economic risks to the downside

NZD/USD retreated more than 0.90% on Wednesday, while being set to snap a two-day streak of gains, after Reserve Bank of New Zealand stated the balance of economic risks was still to the downside, regardless of relaxed social restrictions and an earlier resumption of local economic activity.

RBNZ also said it was ready to provide more stimulus and to use additional monetary policy tools, if necessary.

At its policy meeting earlier on Wednesday, the central bank kept the official cash rate intact at the record low level of 0.25%, in line with expectations, and also kept its Large Scale Asset Purchase programme at NZD 60 billion.

Meanwhile, the US Dollar strengthened against peers on Wednesday as concerns over a second wave of coronavirus infections still weighed on sentiment, despite recent mostly upbeat macro data prints from leading economies.

“The risk of a second wave worldwide has not been banished yet and can quickly push the FX market back into the old pattern of `risk aversion is on the up, let’s buy safe havens; i.e., the dollar’ – even under the assumption that the lockdowns imposed in that case would probably be much less severe than the first time round,” Commerzbank analysts pointed out in an investor note.

As of 11:42 GMT on Wednesday NZD/USD was retreating 0.99% to trade at 0.6427, after touching an intraday low of 0.6423 in mid-European session, or a level not seen since June 22nd (0.6382). The major pair has trimmed earlier gains, being up 0.38% so far this week, following two successive weeks of losses.

On the macroeconomic front, kiwi traders will be expecting the monthly trade balance report by Statistics New Zealand at 22:45 GMT. The country’s trade surplus rose to NZD 1.267 billion in April, or the highest on record, from NZD 361 million in April 2019. Total imports plummeted 22% year-on-year to NZD 4.0 billion in April amid the COVID-19 level 4 lockdown, while total exports decreased 4% year-on-year to NZD 5.3 billion.

At 13:00 GMT the International Monetary Fund is scheduled to publish the revised global growth forecasts in its World Economic Outlook update. IMF’s April projection had pointed to a 3% drop in global Gross Domestic Product during 2020.

Also on today’s calendar, at 16:30 GMT Federal Reserve President for Chicago Charles Evans is expected to participate in Corridor Business Journal Mid-Year Economic Review virtual presentation, while at 19:00 GMT Fed President for St. Louis James Bullard is scheduled to speak on “COVID-19 and the Economy” before the Greater Louisville Inc. – The Metro Chamber of Commerce via webcast.

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 5.7 basis points (0.057%) as of 10:15 GMT on Wednesday, up from 4.7 basis points on June 23rd.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.6487
R1 – 0.6538
R2 – 0.6584
R3 – 0.6634
R4 – 0.6684

S1 – 0.6441
S2 – 0.6391
S3 – 0.6345
S4 – 0.6299