NZD / USD consolidates near 0.6800, the highest level since March 2019

  • NZD / USD extends last week’s strong gains and continues to move higher on Monday.
  • Joe Biden’s victory in the US presidential election keeps the USD bulls on the defensive.
  • Market optimism provided an additional boost to the perceived riskier NZD.

The pair NZD / USD now appears to have entered a bullish consolidation phase, oscillating within a range in new 19-month highs around the 0.6800 level.

A combination of supporting factors has helped the pair take advantage of last week’s strong positive move and gain some traction on the first day of a new trading week. The victory of Democratic candidate Joe Biden in the US presidential election he has removed some of the uncertainties. This, in turn, boosted investor confidence and sparked a new wave of risk appetite. This has been evident by the prevailing bullish sentiment in the stock markets, which in turn has benefited the higher perceived risk NZD.

Meanwhile, the prospect of a divided Congress has clouded the prospects for large fiscal stimulus packages. This in turn has fueled speculation that the Fed could be forced to loosen its monetary policy further to support the economy amid the short-term risk of a growing COVID-19 infection. Pessimistic expectations from the Fed have exercised some additional downward pressure on the US dollar, which was already weaker, and has provided additional boost to the NZD / USD pair. However, the mild overbought conditions on the short-term charts have limited any further gains for the pair, at least for now.

Investors could also refrain from opening aggressive positions prior to the latest Reserve Bank of New Zealand monetary policy update (RBNZ) on Wednesday. It is expected that the RBNZ keeps the status quo and its benchmark interest rate unchanged. However, the central bank is expected to lay the groundwork for introducing negative rates in 2021. Therefore, the key focus of attention will be on the future policy outlook, which will influence the NZD / USD pair and help investors determine the next directional move.

Meanwhile, broader market risk sentiment and USD price dynamics will continue to play a key role in driving the NZD / USD pair amid the absence of relevant economic releases from the US on Monday.

Credits: Forex Street

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