NZD/USD flirts with daily low, just below mid-0.6900s amid stronger USD

• NZD/USD drifted lower on Thursday and reversed the overnight gains to the YTD peak.
• Fed rate hike bets, a softer risk tone benefitted the safe-haven USD and exerted pressure.
• Retreating US bond yields did little to dent the USD bullish sentiment or lend any support.

The NZD/USD pair maintained its offered tone through the early North American session and was last seen trading near the daily low, around the 0.6940 region.

Having faced rejection near the 0.7000 psychological mark, the NZD/USD pair witnessed some selling on Thursday and snapped two days of the winning streak to the highest level since November 2021. The US dollar made a solid comeback and has now reversed the previous day's losses to a nearly two-week low. This, in turn, was seen as a key factor that exerted downward pressure on spot prices.

The incoming geopolitical headlines dashed hopes for a breakthrough in the Russia-Ukraine peace talks. . This, along with the growing prospect of new Western sanctions against Russia, tempered investors' appetite for riskier assets. This was evident from a fresh leg down in the equity markets, which drove some haven flows towards the greenback and weighed on the perceived riskier kiwi.

Apart from this, expectations that the Fed would adopt a more aggressive policy stance to combat high inflation acted as a tailwind for the buck. In fact, the markets have been pricing in a 50 bps Fed rate hike move at the next two meetings. The bets were reaffirmed by Thursday's release of the US Core PCE Price Index, which rose to 5.4% YoY in February from the 5.2% in the previous month.

The combination of supporting factors helped offset the ongoing decline in the US Treasury bond yields, which, so far, did little to hinder the intraday USD positive move or lend support to the NZD/USD pair. It, however, would be prudent to wait for strong follow-through selling before confirming that the pair has topped out in the near term and positioning for a deeper correction.

Technical levels to watch