NZD/USD seems vulnerable near one-week low, around 0.6625-20 amid geopolitical tensions

• NZD/USD edged lower for the third successive day and dropped to a one-week low on Monday.
• Rising bets for a 50 bps Fed rate hike, elevated US bond yields continued underpinning the USD.
• The risk-off impulse further weighed on the perceived riskier kiwi and added to the selling bias.

The NZD/USD pair remained depressed through the early European session and was last seen trading around the 0.6625 area, just a few pips above the one-week low touched earlier this Monday.

The pair witnessed some selling for the third successive day and retreated further from a nearly three-week high, around the 0.6730-0.6735 region touched last Thursday. Worries over an imminent Russian invasion of Ukraine took its toll on the global risk sentiment, which was evident from a generally weaker tone around the equity markets. This, in turn, was seen as a key factor that benefitted the US dollar's relative safe-haven status and drove flows away from the perceived riskier kiwi.

Apart from this, the greenback was further underpinned by rising bets for a faster policy tightening by the Fed, boosted by the red-hot US CPI report released last week. In fact, the markets have been pricing in the possibility of a 50 bps rate hike in March, which remained supportive of elevated US Treasury bond yields. The fundamental backdrop favours the USD bulls and supports prospects for an extension of the depreciating move for the NZD/USD pair amid absent relevant economic releases.

That said, traders might take cues from St. Louis Fed President James Bullard's appearance later during the North American session. It is worth recalling that Bullard took a more hawkish stance and said that the US central bank should hike rates by 100 basis points over the next three meetings. His remarks might influence the USD price dynamics. Apart from this, geopolitical developments, along with the broader market risk sentiment, should produce some impetus to the NZD/USD pair.

Technical levels to watch