NZD/USD seems vulnerable near one-week low, around 0.6770 amid stronger USD/risk-off

• A combination of factors dragged NZD/USD away from a multi-week high touched last Thursday.
• Surging US bond yields continued acting as a tailwind for the USD and exerted some pressure.
• The risk-off impulse further contributed to driving flows away from the perceived riskier kiwi.

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

The pair witnessed fresh selling on Tuesday and extended last week's retracement slide from the vicinity of the 0.6900 mark, or the highest level since November 24. A combination of factors assisted the US dollar to recover further from an over two-month low touched in reaction to the devastating US retail sales report on Friday. This, in turn, was seen as a key factor exerting pressure on the NZD/USD pair.

Expectations for an eventual Fed lift-off in March – amid concerns over stubbornly high inflation – pushed the yield on the benchmark 10-year US government bond to the highest level since January 2020. Moreover, the US 2-year notes, which are highly sensitive to rate hike expectations, surged past the 1.0% mark for the first time since February 2020 and continued underpinning the greenback.

Meanwhile, an extended sell-off in the US bond markets took its toll on the global risk sentiment and triggered a steep decline in the equity markets. This was seen as another factor that benefitted the greenback's relative safe-haven status and drove flows away from the perceived riskier kiwi. The downtick could also be attributed to some technical selling on a sustained break below the 0.6800 mark.

Market participants now look forward to the US economic docket, featuring the release of the Empire State Manufacturing Index for some impetus during the early North American session. This, along with the US bond yields and the broader market risk sentiment, will influence the USD price dynamics and produce some meaningful trading opportunities around the NZD/USD pair.

Technical levels to watch