NZD/USD dives to fresh weekly lows, below 0.6900 mark

The NZD/USD pair dived to fresh weekly lows during the early European session, with bears now looking to extend the downward momentum further below the 0.6900 mark.

The pair struggled to capitalize on its modest post-RBNZ uptick and witnessed a dramatic turnaround from the 0.6980-85 region amid a strong follow-through US dollar buying interest. It is worth mentioning that the Reserve Bank of New Zealand hiked interest rates on Wednesday for the first time in seven years. New Zealand's central bank also said it plans to remove more stimulus measures as the economy continues to recover. Bulls, however, seemed rather unimpressed by the hawkish announcement, instead took cues from a broad-based USD strength.

The greenback continued drawing support from firming expectations that the Fed would begin rolling back its massive pandemic-era stimulus as soon as November. The markets also seem to have started pricing in the prospects for an interest rate hike in 2022 amid worries that the continuous surge in crude oil/energy prices will stoke inflation. This, along with surging US Treasury bond yields, provided an additional boost to the buck, which, in turn, was seen as a key factor that prompted aggressive selling around the NZD/USD pair.

Meanwhile, concerns that a faster than expected rise in inflation could derail the global economic recovery tempered investors' appetite for riskier assets. This was evident from a sharp pullback in the equity markets, which further benefitted the greenback's relative safe-haven status and drove flows away from the perceived riskier kiwi. With the latest leg down, the NZD/USD pair has reversed a major part of its recent bounce from over one-month lows, around the 0.6860 region touched last week, and seems vulnerable to extend the weakening trend.

Market participants now look forward to the release of the US ADP report on private-sector employment for some impetus later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics. Apart from this, traders will further take cues from the broader market risk sentiment for some short-term opportunities around the NZD/USD pair.

Technical levels to watch