Forex Market: NZD/USD gains but upside seen limited by COVID-19 vaccine, US fiscal stimulus uncertainty

NZD/USD was edging up in early European session on Wednesday following remarks by a senior official from the Reserve Bank of New Zealand, but uncertainty surrounding a coronavirus vaccine and a new US fiscal stimulus package kept the safe haven US Dollar supported, while limiting kiwi gains.

In a speech via video link during a Citigroup conference in Sydney earlier on Wednesday, Reserve Bank of New Zealand Assistant Governor Christian Hawkesby said that some recent macroeconomic data had surprised to the upside. However, he added the economic outlook still remained uncertain, suggesting that monetary policy would stay accommodative for a long time.

“The economy is still on life support to some extent,” Hawkesby said. “And, given the outlook, the economy will require continued policy support.”

When asked if the central bank was simply using the threat of negative interest rates to drive the New Zealand Dollar exchange rate lower, Hawkesby said that the RBNZ guidance was not “a game of bluff.”

Meanwhile, the US Dollar was holding gains against major peers on fading optimism that Democrats and the White House will reach a consensus on a new coronavirus aid package.

“Many factors are pointing to more upside for the dollar,” Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said.

“U.S. stimulus may not come until after the election. The People’s Bank of China is halting the yuan’s rise. There’s no reason to buy the euro, and there are a lot of euro longs that need to be unwound.”

Investor risk sentiment took a hit also after Johnson & Johnson’s announcement on Tuesday that the company will pause a clinical trial of a COVID-19 vaccine. At the same time, Eli Lilly also announced that it had put a coronavirus antibody treatment on hold.

As of 7:03 GMT on Wednesday NZD/USD was edging up 0.11% to trade at 0.6652, while moving within a narrow daily range of 0.6644-0.6666. The pair has risen 0.54% so far in October, following a 1.80% slump in September, its first monthly loss since March.

On today’s economic calendar, market players will be expecting the monthly report on US producer prices for September due out at 12:30 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 5.1 basis points (0.051%) as of 6:15 GMT on Wednesday, down from 5.7 basis points on October 13th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.6648
R1 – 0.6668
R2 – 0.6691
R3 – 0.6710
R4 – 0.6730

S1 – 0.6625
S2 – 0.6606
S3 – 0.6583
S4 – 0.6560