• A combination of negative factors dragged NZD/USD to an over one-year low on Monday.
  • Hawkish Fed expectations provided a strong boost to the greenback and exerted pressure.
  • The risk-off mood further contributed to driving flows away from the perceived riskier kiwi.

The NZD/USD pair edged lower through the early North American session and dropped to the 0.6680 area, or the lowest level since November 2020 in the last hour.

Following a brief consolidation during the first half of the trading on Monday, the NZD/USD pair met with a fresh supply and prolong its bearish trend witnessed over the past two weeks or so. The US dollar made a solid comeback amid growing acceptance that the Fed will tighten its monetary policy at a faster pace than anticipated.

In fact, the markets have fully priced in the prospects for an eventual lift-off in March and expect a total of four rate hikes in 2022. Apart from this, the risk-off mood – as depicted by an extension of the recent fall in the equity markets – further benefitted the safe-haven greenback and drove flows away from the perceived riskier kiwi.

Meanwhile, the combination of factors dragged the NZD/USD pair below the 2021 swing lows support, taking along some trading stops placed near the 0.6700 round-figure mark. Hence, the downfall could further be attributed to some technical selling, which might have already set the stage for a further near-term depreciating move.

Market participants now look forward to the release of the flash US PMI prints (Manufacturing and Services) for a fresh impetus. This, along with the US bond yields, will influence the USD price dynamics. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities around the NZD/USD pair.

The key focus, however, will remain on the outcome of a crucial two-day FOMC monetary policy meeting, scheduled to be announced during the US session on Wednesday. Investors will look for clues about the likely timing of when the Fed will commence its policy tightening cycle. This, in turn, will drive the USD and determine the near-term trajectory for the NZD/USD pair.

Technical levels to watch