NZD/USD flirts with 2021 low, just above 0.6700 mark amid modest USD strength

• NZD/USD was seen consolidating its recent slide back closer to the 2021 swing low.
• Rebounding US bond yields helped revive the USD demand and acted as a headwind.
• The downside seems limited as investors seem reluctant ahead of the FOMC meeting.

The NZD/USD pair languished near monthly low through the early European session, with bears still awaiting a sustained break below the 0.6700 round-figure mark.

The pair, so far, has struggled to gain any meaningful traction and now seems to have entered a bearish consolidation phase near the 2021 low touched in December. The US dollar was back in demand on the first day of a new week amid rebounding US Treasury bond yields and the prospects for a faster policy tightening by the Fed. This, in turn, was seen as a key factor that acted as a headwind for the NZD/USD pair.

Investors seem convinced that the Fed would begin raising interest rates in March to combat high inflation and have been pricing in a total of four hikes in 2022. This has been fueling concerns that rising borrowing costs could dent the earnings outlook for companies. This, along with escalating geopolitical tensions, weighed on investors' sentiment and further capped the upside for the perceived riskier kiwi.

The downside, however, remains cushioned, at least for the time being, as investors seemed reluctant to place aggressive bets ahead of the key central bank event risk. The Fed is scheduled to announce the outcome of a two-day policy meeting during the US session on Wednesday. This will play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the NZD/USD pair.

In the meantime, traders on Monday will take cues from the release of the flash US PMI prints, due later during the early North American session. Apart from this, the US bond yields and the broader market risk sentiment will drive the USD demand. This, in turn, should allow traders to grab some short-term opportunities around the NZD/USD pair.

Technical levels to watch