NZD/USD remains depressed near 0.6775-70 area amid modest USD strength

• Resurgent USD demand prompted fresh selling around NZD/USD on Monday.
• Hawkish Fed expectations continued acting as a tailwind for the greenback.
• Traders might refrain from aggressive bets ahead of the key FOMC decision.

The NZD/USD pair maintained its bid tone through the early North American session and was last seen trading near a multi-day low, around the 0.6775-70 region.

Having struggled to find acceptance above the 0.6800 mark, the NZD/USD pair met with a fresh supply on the first day of a new week and was pressured by resurgent US dollar demand. Friday's US consumer inflation figures reinforced expectations for an early policy tightening by the Fed, which, in turn, continued acting as a tailwind for the USD.

Hence, the market focus will remain glued to the outcome of a two-day FOMC monetary policy meeting, scheduled to be announced on Wednesday. In the meantime, anxiety ahead of the key central bank event risk kept a lid on any optimistic move in the markets and further benefitted the greenback's relative safe-haven status against the perceived riskier kiwi.

The US central bank is expected to quicken the pace of tapering the bond purchases. Hence, investors would look for clues about the Fed's strategy on interest rate hikes amid worries about the persistent rise in inflation pressures. This will influence the near-term USD price dynamics and provide a fresh directional impetus to the NZD/USD pair.

Meanwhile, retreating US Treasury bond yields could hold back the USD bulls from placing aggressive bets and extend some support to the NZD/USD pair, at least for the time being. This warrants some caution before positioning for any further depreciating move amid absent relevant market moving economic releases from the US.

Technical levels to watch