- A combination of factors prompted aggressive selling around NZD/USD on Tuesday.
- Surging US bond yields pushed the USD to over one-month tops and exerted pressure.
- The risk-off impulse collaborated to drive flows away from the perceived riskier kiwi.
The NZD/USD pair continued losing ground through the first half of the European session and dropped to one-month lows, around the 0.6965 region in the last hour.
Following the previous day's brief pause, the NZD/USD pair came under some renewed selling pressure on Tuesday and resumed its recent retracement slide from monthly tops, around the 0.7170 region. The downward trajectory was exclusively sponsored by a broad-based US dollar strength, bolstered by surging US Treasury bond yields and the risk-off impulse in the markets.
The US bond yields have been scaling higher after the Fed last week hinted that it will soon taper its asset purchases. Moreover, the so-called dot plot showed policymakers' inclination to raise interest rates in 2022. The repricing of the likely timing of the Fed's policy tightening pushed the yield on the benchmark 10-year US government bond to the highest level since June 17.
Apart from this, a turnaround in the global risk sentiment further benefitted the greenback's relative safe-haven status and drove flows away from the perceived riskier kiwi. Investors remain worried about China Evergrande Group's unsolved debt crisis. This, along with intensifying energy crisis in Europe and China – amid soaring gas and oil prices – weighed on investors' sentiment.
The ongoing downfall could further be attributed to some technical selling on a sustained break below the key 0.7000 psychological mark. A subsequent slide below the previous monthly swing lows, around the 0.6980 region, might have already set the stage for further losses. Hence, some follow-through weakness, towards the 0.6935-30 support area, remains a distinct possibility.
Market participants now look forward to Fed Chair Jerome Powell's testimony before the Senate Banking Committee. This, along with the release of the Conference Board's Consumer Confidence Index and the US bond yields, will influence the USD price dynamics. Traders would further take cues from the broader market risk sentiment for some short-term opportunities around the NZD/USD pair.
Technical levels to watch
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