- The NZD / USD is fluctuating in a relatively tight range on Tuesday.
- The RBNZ is expected to raise its policy rate by 25 basis points.
- The US Dollar Index clings to modest daily gains, hovering below 94.00.
The pair NZD / USD is having a difficult time making a decisive move in either direction on Tuesday as investors stand on the sidelines as they wait for the Reserve Bank of New Zealand (RBNZ) to announce its policy decisions. At time of writing, the pair was up 0.1% on the day at 0.6969.
The RBNZ is expected to increase the monetary policy rate to 0.5%
Although the observed positive change in risk sentiment is helping the NZD / USD to stay afloat in positive territory, the modest strength of the USD is limiting its upside potential. Backed by a 3% jump in the 10-year US Treasury yield, the US dollar index is clinging to modest daily gains around 93.90.
Earlier in the day, US data showed that economic activity in the services sector continued to expand at a relatively strong pace in September with the ISM services PMI rising to 61.9 from 61.7 in August. On the other hand, the GDT price index was unchanged after the biweekly auction in New Zealand.
The RBNZ is expected to raise its policy rate 25 basis points to 0.5% on Wednesday and the market reaction is likely to be subdued should that scenario materialize. However, if the bank decides to delay the rate hike, the NZD could come under heavy downward pressure. However, given the higher inflation risks, the Bank of New Zealand is unlikely to remain on hold. On the other hand, a higher than expected rate increase could trigger a rally in the NZD / USD.
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