- A combination of factors prompted some fresh selling around NZD/USD on Monday.
- COVID-19 jitters continued weighing on investors’ sentiment and undermined kiwi.
- Hawkish Fed expectations benefitted the USD and contributed to the selling bias.
The NZD/USD pair maintained its offered tone through the first half of the European session and was last seen hovering near daily lows, around the 0.6965-60 region.
The pair struggled to capitalize on its early uptick to levels just above the key 0.7000 psychological mark and came under some fresh selling pressure on the first day of a new trading week. The NZD/USD pair has now eroded a part of Friday's goodish recovery move from YTD lows and was pressured by a combination of factors.
Worries about the economic fallout from the spread of the highly contagious Delta variant of the coronavirus continued weighing on investors' sentiment. This was evident from a weaker tone around the equity markets, which, in turn, acted as a headwind for the perceived riskier kiwi and capped the upside for the NZD/USD pair.
Meanwhile, the risk-off mood, along with expectations that the Fed could be moving towards tightening its monetary policy underpinned the safe-haven US dollar. This was seen as another factor that exerted some additional pressure on the NZD/USD pair and contributed to the intraday decline of around 45-50 pips from daily swing highs.
The market focus now shifts to the latest US consumer inflation figures, due for release on Tuesday. Apart from this, Fed Chair Jerome Powell's semi-annual congressional testimony on Wednesday and Thursday should provide fresh clues about the US central bank's policy outlook and influence the near-term USD price dynamics.
It is worth recalling that the June FOMC meeting minutes released last Wednesday revealed that Fed officials agreed on the need to be ready to act if inflation or other risks materialize. Hence, any further hawkish hints will be seen as a fresh trigger for the USD bulls and set the stage for an extension of the NZD/USD pair's recent decline.
In the meantime, development surrounding the coronavirus saga will play a key role in driving the broader market risk sentiment and the USD demand. This should assist traders to grab some short-term opportunities on Monday amid absent relevant market moving economic releases from the US.
Technical levels to watch
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