NZD/USD drops to 0.7200 neighbourhood, over one-week lows

The NZD/USD pair dropped to one-and-half-week lows during the first half of the European session, with bears now eyeing some follow-through weakness below the 0.7200 mark.

The pair failed to capitalize on the previous day's positive move, instead met with some fresh supply on Tuesday and seems set to extend its recent sharp pullback from the highest level since August 2017. The downtick marked the third day of a negative move in the previous four and was sponsored by a broad-based US dollar strength.

The greenback remained well supported by the prospects for a relatively faster US economic recovery amid the progress in COVID-19 vaccinations and a massive US fiscal spending plan. The reflation trade has been fueling expectations for an uptick in inflation and raised doubts that the Fed would retain low rates for a longer period.

Apart from this, a softer risk tone – as depicted by a weaker trading sentiment around the equity markets – provided an additional boost to the USD's relative safe-haven status. This, in turn, was seen as another factor weighing on the perceived riskier kiwi and contributed to the NZD/USD pair's slide back closer to the 0.7200 mark.

A convincing break below the mentioned level will be seen as a fresh trigger for bearish traders and pave the way for a further near-term depreciating move amid absent relevant economic releases. The bearish outlook is reinforced by the fact that technical indicators on the daily chart have just started drifting into negative territory.

Hence, a subsequent fall towards intermediate support near the 0.7160-55 region, now looks a distinct possibility. Some follow-through selling might turn the NZD/USD pair vulnerable to accelerate the slide towards testing the 0.7100 round-figure mark.

Technical levels to watch