NZD/USD looks vulnerable near 1-week low around 0.6770 amid stronger USD/risk aversion

• A combination of factors dragged NZD/USD away from multi-week highs hit last Thursday.
• Rising US bond yields continued to act as a tailwind for the USD and put some pressure on it.
• The risk-off drive further contributed to driving flows away from the kiwi perceived as riskier.

The pair NZD / USD It maintained its offered tone during the mid-European session and was last seen trading near a one-week low around the 0.6770 area.

The pair saw fresh selling on Tuesday and extended last week’s retracement decline from near 0.6900, or the highest level since Nov 24. A combination of factors helped the US dollar recover further from a more than two-month low hit in reaction. to Friday’s devastating US retail sales report. This, in turn, was seen as a key factor putting pressure on the NZD/USD pair.

Expectations of an eventual Fed lift-off in March, amid stubbornly high inflation concerns, pushed the benchmark 10-year US government bond yield to the highest level since January 2020. 2yrs, which are highly sensitive to rate hike expectations, broke above the 1.0% level for the first time since February 2020 and continued to support the dollar.

Meanwhile, a prolonged sell-off in US bond markets weighed on global risk sentiment and sent equity markets down sharply. This was seen as another factor that benefited the dollar’s relative safe-haven status and pushed flows away from the perceived riskier kiwi. The drop could also be attributed to some technical selling on a sustained break below 0.6800.

Market participants are now eagerly awaiting the US economic docket, with the release of the Empire State Manufacturing Index to gain some momentum during the early American session. This coupled with US bond yields and broader market risk sentiment will influence USD price dynamics and produce some significant trading opportunities around the NZD/USD pair.

Technical levels