NZD/USD remains depressed below 0.6800, flirts with YTD low ahead of NFP

• The emergence of some USD buying prompted fresh selling around NZD/USD on Friday.
• Hawkish Fed expectations turned out to be a key factor that acted as a tailwind for the USD.
• Investors look forward to the latest US monthly jobs report for some meaningful impetus.

The NZD/USD pair edged lower during the early European session and dropped back closer to the YTD low, around the 0.6780-75 region in the last hour.

Following some two-way price moves since the beginning of this week, the NZD/USD pair met with a fresh supply on Friday and now seems all set to prolong a one-month-old bearish trend. The US dollar gained some positive traction for the third successive day and remained well supported by hawkish Fed expectations. This, in turn, was seen as a key factor that dragged the pair lower on the last day of the week.

Investors now seem convinced that the Fed would adopt a more aggressive policy response to contain stubbornly high inflation. In fact, the money markets indicate that the Fed could begin liftoff in June and hike rates thrice in 2022. The bets increased further after Fed Chair Jerome Powell said that it's time to retire the word transitory and consider wrapping up the taper of our asset purchases, perhaps a few months sooner.

Apart from the prevalent bullish sentiment surrounding the USD, the disappointing release of Chinese Caixin Services PMI further undermined antipodean currencies, including the kiwi. That said, signs of stability in the equity markets could help limit deeper losses for the NZD/USD pair. Traders might also refrain from placing aggressive bets ahead of Friday's release of the closely-watched US monthly employment details.

The popularly known US NFP report is expected to show that the economy added 550K new jobs in November and that the unemployment rate dipped to 4.5% from 4.6%. The data will play a key role in influencing the USD and provide some impetus to the NZD/USD pair. Traders will further take cues from developments surrounding the coronavirus saga and the broader market risk sentiment to grab some short-term opportunities around the major.

Technical levels to watch