NZD/USD flirts with one-week low, just below 0.6600 mark amid stronger USD/risk-off

The NZD/USD pair maintained its heavily offered tone heading into the North American session and was last seen trading just below the 0.6600 mark, or over a one-week low.

The pair witnessed selling for the third successive day on Monday and moved further away from the monthly high, around the 0.6730-0.6735 region touched last week. The prospects for a faster policy tightening by the Fed acted as a tailwind for the US dollar. This, along with the risk-off impulse in the markets, drove flows away from the perceived riskier kiwi and exerted pressure on the NZD/USD pair.

Investors seem convinced that the Fed will adopt an aggressive policy response to combat stubbornly high inflation and have been pricing in a 50 bps rate hike in March. The market bets were reinforced by the red-hot US CPI report released last Thursday. This, in turn, was seen as a key factor that continued underpinning the greenback and attracted some follow-through selling around the NZD/USD pair on Monday.

Apart from this, worries over an imminent Russian invasion of Ukraine triggered a fresh wave of the global risk-aversion trade, which was evident from a sell-off in the equity markets. In the latest development, a senior Russian military official reportedly said that Russia was ready to open fire on foreign ships and submarines that illegally enter its territorial waters. This further benefitted the safe-haven buck.

From a technical perspective, acceptance below the 0.6600 mark and the NZD/USD pair's inability to attract any buying suggests that the recent bounce from the lowest level since October 2020 has run its course. In the absence of any major market-moving economic releases from the US, traders will take cues from comments by St. Louis Fed President James Bullard, who called for 100 bps rate hikes over the next three FOMC policy meetings.

Technical levels to watch