NZD/USD drops to fresh three-week low under 0.6600, eyes RBNZ

• NZD/USD prints four-day losing streak with the latest one defying bounce off 0.6571.
• Local virus transmission in New Zealand, strong US dollar weighed on the pair off-late.
• Market sentiment remains heavy amid uncertainty over US stimulus, Sino-American tussle and coronavirus woes.
• RBNZ is expected to keep the benchmark rate unchanged at 0.25%, dovish Monetary Policy Statement widely anticipated.

NZD/USD stands on a slippery ground while declining to 0.6570, down 0.18% on a day, amid the initial Asian session on Wednesday. The pair drops for the fourth day in a raw as Friday’s US dollar recovery gains support of coronavirus (COVID-19) resurgence in New Zealand. The pair traders are currently waiting for the Reserve Bank of New Zealand (RBNZ) meeting, up for publishing at 02:00 GMT, for fresh impulse.

RBNZ stays ready to join the bears’ league…

Despite recently mixed economics, the RBNZ will highlight its bearish bias in the quarterly Monetary Policy Statement as major data fails to portray a proper economic scenario amid the virus-led lockdown. This includes the upbeat Unemployment rate for the second quarter (Q2) that worsens during the latest weeks of the survey.

While identifying this, analysts at Westpac say, “The cash rate will remain at 0.25%, and the RBNZ will commit to keeping it there until at least March 2021. The RBNZ may keep the Large Scale Asset Purchases program at NZ$60bn to May 2021, without any guidance on what will happen beyond then. An equivalent alternative would be to extend the LSAP to August 2021 and lift the cap to NZ$70bn. We expect that the LSAP will last for two years and will eventually total NZ$90 billion (previously NZ$100 billion). We expect that the OCR will fall to -0.5% in April next year because there is a need for more monetary stimulus than the LSAP alone can provide.”

Elsewhere, the local transmission in the Pacific nation pushes the government to defer the country’s dissolution of the country’s Parliament until Monday. Though, no decision on delaying the September month election was delivered. Further, the policymakers are also discussing wage subsidies for Auckland if the recently announced lockdown extends. It’s worth mentioning that authorities in New Zealand announced level 3 lockdown the previous day after reporting four cases of the deadly virus from a single family that never traveled recently.

Talking about the broad risk sentiment, S&P 500 Futures gain 0.20% amid uncertainty over the US stimulus and Sino-American tussle. The reason could be traced from the recently slowing virus statistics from the US and Australia.

Moving on, RBNZ will be the key as it is expected to weigh down the NZD/USD pair. Should the New Zealand central bank disappoint markets by keeping its neutral tone in the statement, in addition to expected no rate change, the kiwi pair may not hesitate to challenge the bears. Following the RBNZ, the US Consumer Price Index (CPI) for July, expected to rise to 0.8% YoY from 0.6%, could also entertain the pair traders.

Technical analysis

The pair’s clear break below an ascending trend line from March, at 0.6600 now, drives the quote further down towards a 50-day SMA level of 0.6544.