NZD/USD drops to one-week lows, below mid-0.6900s

The NZD/USD pair extended the previous day's rejection slide from the key 0.7000 psychological mark and edged lower for the second consecutive session on Wednesday. The downward trajectory dragged the pair to one-week lows, further below mid-0.6900s during the early European session.

Worries about the economic fallout from the fast-spreading Delta variant of the coronavirus, along with China's regulatory crackdown, sent ripples through the global equity markets. The risk-off impulse drove some haven flows towards the US dollar and was seen as a key factor exerting downward pressure on the perceived riskier kiwi.

The greenback was further supported by a modest uptick in the US Treasury bond yields, though expectations that the Fed will stick to its dovish stance capped gains. Hence, it will be prudent to wait for some strong follow-through selling before placing fresh bets around the NZD/USD pair and an extension of the ongoing downfall.

The Fed is scheduled to announce its policy decision at the conclusion of a two-day meeting later during the US session. Market participants will look for a clear answer to the crucial question of when the tapering will begin. This will influence the near-term USD price dynamics and provide a fresh directional impetus to the NZD/USD.

Heading into the key event risk, the US bond yields and the broader market risk sentiment will drive the greenback amid absent relevant market moving economic releases. This, in turn, should allow traders to grab some short-term opportunities around the NZD/USD pair.

Technical levels to watch