NZD/USD tentative as traders eye incoming RBNZ rate decision

• NZD/USD trades at the midpoint of its intra-day 0.6800-40 range as traders await the RBNZ rate decision.
• However, global themes and USD dynamics look set to remain in the driving seat for the pair.
• Aside from Monday’s high just above 0.6850, there are very little notable levels of resistance ahead of 0.6900.

NZD/USD is trading with caution ahead of the upcoming RBNZ rate decision; the pair is flat on the day around 0.6820 and trades around the mid-point of its intraday 0.6800-40 range.

RBNZ to steal the limelight but USD dynamics to dominate kiwi price action

The RBNZ releases the result of its latest policy decision at 01:00GMT and is not expected to tweak interest rates from current levels at 0.25%, despite the RBA cutting rates from 0.25% to 0.1% last week. However, the bank is set to introduce a new Funding for Lending programme, which is seen as a precursor for negative rates that are likely to come at some point next year. 

As far as NZD is concerned, the tone of the statement on the economy, how the bank views current NZD valuation and any forward guidance on negative rates will be of interest and could trigger some volatility. Otherwise, NZD/USD’s direction is most likely to continue to be a determinant of USD/global risk appetite dynamics.

The pair broke out to fresh highs since March 2019 last week above 0.6800 and has since managed to garner further upside traction. The primary force driving the pair higher in recent days has been Joe Biden’s victory in last week’s US Presidential election.

As is the case with other small, trade-dependent nations across the globe, Joe Biden’s victory signals better trade conditions,  through a less protectionist stance on trade and more predictable. New Zealand will be a key beneficiary of this, given its reliance on primarily agricultural exports, hence recent NZD strength.

As markets continue to price in the implications of four years of Joe Biden, as well as hopes for a faster economic recovery in 2021 on the back of quicker-than-expected development and distribution of Covid-19 vaccines, risks look to be pointing to the upside for NZD/USD.

Recent NZD strength may however encourage a more aggressively dovish tone from the RBNZ, so the currencies near-term outlook is far from certain.

NZD/USD has a clear air for a run at 0.6900

Over the past week, NZD/USD has crashed through a number of key areas of resistance and left its 21 and 50-day moving averages, at 0.6675 and 0.6662 respectively, for dead. Though some way from Monday highs above 0.6850, the pair remains well supported above the 0.6800 level, slightly below which lies more support in the form of the 18 September 2020 high at 0.6798 and the 2 September 2020 high at 0.6790.

To the upside, aside from Monday’s high just above 0.6850, there is very little by way of notable levels of resistance prior to 0.6900. Above that, there is a double top set in Q1 2019 around 0.6940. Technically speaking then, NZD/USD has room to rally to the upside.  

More: 

RBNZ Preview: Prepping up for negative interest rates