NZD/USD consolidates below 0.6700 mark, over one-year low as traders await FOMC

• NZD/USD lacked any firm directional bias and remained confined in a narrow trading band.
• Signs of stability in the equity markets extended some support to the perceived riskier kiwi.
• Fed rate hike bets, elevated US bond yields underpinned the USD and kept a lid on the pair.

The NZD/USD pair remained on the defensive through the early European session and was seen trading with modest losses, around the 0.6680 region.

The pair struggled to capitalize on the overnight late recovery from the 0.6660 area and was seen consolidating its recent slide to the lowest level since November 2020. Despite rising geopolitical risks, signs of stability in the equity markets turned out to be a key factor that extended some support to the perceived riskier kiwi.

On the other hand, the US dollar stood tall near a two-week high and continued drawing support from expectations that the Fed will tighten its policy at a faster pace than anticipated. In fact, the markets seem convinced that the US central bank will begin raising rates in March and have been pricing in a total of four hikes in 2022.

Apart from this, concerns about a potential armed conflict in Ukraine further benefitted the safe-haven greenback and acted as a headwind for the NZD/USD pair. Investors also seemed reluctant to place aggressive bets and preferred to wait on the sidelines ahead of the key central bank event risk – the outcome of a two-day FOMC policy meeting.

The Fed is scheduled to announce its decision later during the US session. Investors will look for fresh clues about the likely timing of when the Fed will commence its policy tightening cycle. 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, elevated US Treasury bond yields should continue to underpin the greenback. This, along with the broader market risk sentiment, might provide some impetus to the NZD/USD pair and allow traders to grab some short-term opportunities.

Technical levels to watch