NZD/USD extends rally to fresh 3-year highs above 0.7400

• NZD/USD is posting impressive gains on Wednesday, trades above 0.7400.
• NZD capitalizes on risk flows and RBNZ's upbeat outlook.
• US Dollar Index looks to close the day little changed.

The NZD/USD pair started the day on a firm footing and posted strong gains during the Asian trading hours. After going into a consolidation phase during the European session, the pair regained its traction and touched its highest level in three years at 0.7411. As of writing, the pair was up 0.9% at 0.7405.

Following its February policy meeting, the Reserve Bank of New Zealand (RBNZ) left its policy rate unchanged at 0.25% as expected and kept large scale asset purchases steady at NZD100 billion. Although the bank reaffirmed its commitment to take policy action if needed, it revised the GDP growth forecast for 20212 to 4% from 3.6%.

The RBNZ's upbeat outlook provided a boost to the kiwi but the renewed USD strength in the second half of the day limited NZD/USD's upside. 

DXY remains on track to close flat

Supported by a sharp upsurge witnessed in the US Treasury bond yields, the US Dollar Index climbed to a daily high of 90.43.

However, the positive shift in market sentiment, as reflected by a decisive rebound in Wall Street's main indexes, made it difficult for the USD to preserve its strength and allowed risk-sensitive NZD to extend its rally. At the moment, the DXY is virtually unchanged on the day at 90.20 and the S&P 500 Index is up 1.15%.

On Thursday, the ANZ Business Confidence and Activity Outlook data from New Zealand will be watched closely by market participants.

Technical levels to watch for