- NZD/USD is fluctuating in a relatively tight range on Tuesday.
- RBNZ is expected to hike its policy rate by 25 basis points.
- US Dollar Index clings to modest daily gains, stays below 94.00.
The NZD/USD pair is having a hard time making a decisive move in either direction on Tuesday as investors remain on the sidelines while waiting for the Reserve Bank of New Zealand (RBNZ) to announce its policy decisions. As of writing, the pair was up 0.1% on the day at 0.6969.
RBNZ expected to raise policy rate to 0.5%
Although the positive shift witnessed in risk sentiment is helping NZD/USD stay afloat in the positive territory, the modest USD strength is limiting its upside. Supported by a 3% jump in the benchmark 10-year US Treasury bond yield, the US Dollar Index clings to modest daily gains around 93.90.
Earlier in the day, the data from the US showed that the economic activity in the service sector continued to expand at a relatively strong pace in September with the ISM Services PMI edging higher to 61.9 from 61.7 in August. On the other hand, the GDT Price Index remained unchanged following the bi-weekly auction in New Zealand.
The RBNZ is expected to hike its policy rate by 25 basis points to 0.5% on Wednesday and the market reaction is likely to be muted in case that scenario materializes. However, if the bank decides to delay the rate hike, the NZD could come under strong bearish pressure. Nevertheless, given heightened inflation risks, the RBNZ is unlikely to stay on hold. On the flip side, a bigger-than-expected rate increase could trigger a rally in NZD/USD.
RBNZ Preview: Forecasts from seven major banks, set for the first hike since the pandemic.