NZD/USD off one-year low, keeps the red near 0.6800 mark

The NZD/USD pair dropped to the lowest level since November 2020 during the early European session, albeit recovered a few pips thereafter and was last seen trading around the 0.6800 mark.

Following the previous day's modest bounce, the NZD/USD pair came under fresh selling pressure on Tuesday and prolonged its one-month-old bearish trajectory. Concerns about the potential economic fallout from the spread of a new vaccine-resistant variant of the coronavirus – Omicron – continue weighing on investors' sentiment. This was evident from a fresh leg down in the global equity markets, which, in turn, was seen as a key factor that drove flows away from the perceived riskier kiwi.

Bulls seemed rather unimpressed and failed to gain any respite from the heavily offered tone around the US dollar, weighed down by declining US Treasury bond yields. The latest developments surrounding the coronavirus saga might have dashed market expectations for an early policy tightening by the Fed. This, along with the global flight to safety, dragged the yield on the benchmark 10-year US government bond to a near three-week low, back closer to the 1.45% threshold and undermined the greenback.

That said, extremely oversold conditions on short-term charts helped limit any deeper losses, rather assisted the NZD/USD pair to quickly recover around 20-25 pips from the 0.6780 region. Market participants now look forward to the US economic docket, highlighting the release of the Conference Board's Consumer Confidence Index later during the early North American session. The key focus, however, will be on Fed Chair Jerome Powell's testimony before the Senate Banking Committee.

Powell's remarks will influence market expectations about the Fed's next policy move and drive the USD demand. Apart from this, traders will further take cues from the broader market risk sentiment to grab some short-term opportunities around the NZD/USD pair.

Technical levels to watch