- A combination of factors continued to drag NZD / USD lower for the third day in a row.
- Expectations of an aggressive Fed pushed the USD to month-long highs and put some pressure on it.
- Risk aversion did even more to drive away flows of kiwi perceived as riskier.
The pair NZD / USD it remained depressed during the first half of the European session and was last seen trading near three-week lows, just above the key psychological level of 0.7000.
The pair extended last week’s bearish breakout momentum below the horizontal support at 0.7075 and witnessed strong selling for the third day in a row amid widespread US dollar strength. Expectations of an imminent Fed phase-down announcement continued to act as a tailwind for the USD, which received an additional boost from risk aversion.
Incoming macroeconomic data from the US pointed to continuing the economic recovery and convincing investors that the Fed would begin rolling back its massive pandemic-era stimulus sooner rather than later. This, in turn, was seen as a key factor behind the recent strong rally in US Treasury yields and pushed the key USD index to near month-long highs on Monday.
Meanwhile, investors remain concerned about the rapidly expanding Delta variant and a global economic slowdown. This, coupled with the looming catastrophe of indebted developer China Evergrande, took its toll on risk sentiment. The policy added additional uncertainty ahead of this week’s federal elections in Canada and Germany and triggered a sell-off in equity markets.
This further benefited the dollar’s relative safe-haven status and pushed away kiwi flows perceived as riskier. That said, the oversold RSI on the hourly charts prevented traders from placing new bearish bets. This, in turn, helped the NZD / USD pair find some support and defend the 50-day SMA amid the absence of relevant economic releases in the US market.
The market’s focus remains the result of a two-day FOMC monetary policy meeting starting Tuesday looking for clues as to the likely timing of the Fed’s plan to reduce its bond purchases. This will play a key role in influencing short-term USD price dynamics and provide new directional momentum to the NZD / USD pair.
Technical levels
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