Forex Market: NZD/USD trades near one-week lows as a delay in US stimulus talks cools risk sentiment

NZD/USD was trading in proximity to one-week lows on Wednesday, following its steepest single-day drop since September 23rd on Tuesday, as market sentiment took a hit after US President Trump’s decision to call off talks on fiscal stimulus with Democrat lawmakers.

Trump, who is still under treatment for COVID-19, surprised markets on Tuesday by calling off economic stimulus talks until after the presidential election on November 3rd, which heightens downside risks for the economy amid surging new coronavirus infections.

“The reaction is a type of risk-off trade to buy the dollar and the yen against other currencies,” Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said.

“Without additional stimulus, the U.S. economy will slow and the global economy will slow.”

Trump has just returned to the White House on Monday after three nights in hospital for coronavirus treatment. There have been opinions among medical experts that his early discharge puts his staff at risk of infection.

Meanwhile, recent polls have revealed a swing in public opinion against Trump. A Reuters/Ipsos polling from October 2nd to October 6th showed 52% of likely voters supporting Democrat Joe Biden and 40% – Trump.

As of 7:04 GMT on Wednesday NZD/USD was edging up 0.24% to trade at 0.6598, after earlier touching an intraday low of 0.6576, or a level not seen since September 30th (0.6569). The pair has dropped 0.19% so far in October, following a 1.80% slump in September, its first monthly loss since March.

On today’s economic calendar, at 18:00 GMT the Federal Open Market Committee (FOMC) will release the minutes from its meeting on policy held on September 15th-16th. Yesterday Federal Reserve Chair Jerome Powell said the US economy could end up into a downward spiral in case the virus spread is not effectively controlled and he also called for more economic aid.

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 4.9 basis points (0.049%) as of 6:15 GMT on Wednesday, down from 6.2 basis points on October 6th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.6607
R1 – 0.6633
R2 – 0.6684
R3 – 0.6709
R4 – 0.6734

S1 – 0.6557
S2 – 0.6531
S3 – 0.6480
S4 – 0.6430