- A combination of factors dragged NZD/USD lower for the third day in a row on Monday.
- Growing bets on a 50bp Fed rate hike in March continued to act as a tailwind for the USD.
- Risk aversion weighed on the kiwi perceived as riskier and also contributed to the drop.
The pair NZD/USD it maintained its strongly offered tone heading into the American session and was last seen trading just below 0.6600, or above a one-week low.
The pair witnessed selling for the third day in a row on Monday and pulled further away from the monthly high around the 0.6730-0.6735 region touched last week. Prospects for faster policy tightening by the Fed acted as a tailwind for the US dollar. This coupled with the risk aversion drive in the markets drove flows away from the perceived riskier kiwi and put pressure on the NZD/USD pair.
Investors seem convinced that the Fed will adopt an aggressive policy response to combat persistently high inflation and have priced in a 50bp rate hike in March. Market bets were bolstered by the hot US CPI report released last Thursday. This, in turn, was seen as a key factor that continued to support the dollar and attracted some follow-up selling around the NZD/USD pair on Monday.
Aside from this, concerns about an impending Russian invasion of Ukraine triggered a new wave of risk-averse global trading, which was evident in a sell-off in 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 illegally entering its territorial waters. This further benefited the safe haven dollar.
From a technical perspective, the acceptance below the 0.6600 mark and the inability of the NZD/USD pair to attract buying suggests that the recent bounce from the lowest level since October 2020 has come to an end. In the absence of any major economic releases to move the US market, traders will take inspiration from comments from St. Louis Fed President James Bullard who called for 100bp rate hikes in the next three meetings. FOMC policy statement.
Technical levels
Source: Fx Street
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