NZD/USD flirts with weekly lows, below mid-0.7200s

The NZD/USD pair maintained its offered tone through the early European session and was last seen trading near daily lows, around the 0.7235-30 region.

The pair witnessed some heavy selling during the first half of the trading action on Wednesday and extended this week's pullback from two-and-half-month tops, or levels just above the 0.7300 mark. This marked the third consecutive day of a negative move and was sponsored by the prevalent risk-off mood, which tends to drive flows away from the perceived riskier kiwi.

The global risk sentiment took a hit amid a dramatic escalation of conflict between Israel and Palestinian militant group, sparked by unrest at Jerusalem's flashpoint Al-Aqsa Mosque compound. Israel and Hamas exchanged heavy fire on Tuesday, killing at least 35 Palestinians in Gaza and turning this the most violent faceoff between the two bitter enemies since 2014.

This comes on the back of worries that rising inflationary pressure will force the Fed to hike rates earlier than expected, which further dented investors' confidence. The market focus will be squarely on the latest US consumer inflation figures, due later during the early North American session and expected to show that the headline CPI accelerate to 3.6% YoY in April.

Meanwhile, the global flight to safety prompted some short-covering around the safe-haven US dollar. This was seen as another factor that contributed to the pair's intraday decline. It will now be interesting to see if the NZD/USD pair is able to attract fresh buying at lower levels or the ongoing pullback marks the end of a multi-week-old bullish trajectory.

Technical levels to watch