NZD/USD seems vulnerable near YTD low, below mid-0.6700s amid stronger USD

• NZD/USD was seen oscillating in a narrow trading band near the lowest level since November 2020.
• Hawkish Fed expectations, rebounding US bond yields underpinned the USD and capped the upside.
• Easing Omicron fears extended some support to the perceived riskier kiwi and helped limit losses.

The NZD/USD pair consolidated its recent losses to the lowest level since November 2020 and was seen oscillating in a range around the 0.6750-40 region heading into the European session.

A combination of diverging forces failed to provide any meaningful impetus to the NZD/USD pair, instead led to a subdued/range-bound price action on the first day of a new week. The global risk sentiment stabilized a bit in reaction to reports from South Africa, suggesting that Omicron patients only had relatively mild symptoms. This was evident from a generally positive tone around the equity markets, which extended some support to the perceived riskier kiwi.

The supporting factor was largely offset by the emergence of fresh buying around the US dollar, which was seen as a key factor that acted as a headwind for the NZD/USD pair. As investors' looked past Friday's mixed US NFP report, the USD was back in demand amid firming expectations for a faster policy tightening by the Fed. Investors now seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation.

In fact, the money markets indicate a high probability of the Fed liftoff by May 2022. This, along with a goodish rebound in the US Treasury bond yields from the lowest level since September, underpinned the greenback. The fundamental backdrop seems tilted firmly in favour of the USD bulls and supports prospects for a further depreciating move for the NZD/USD pair. Hence, the range-bound price action might still be categorized as a bearish consolidation phase.

There isn't any major market-moving economic data due for release from the US on Monday, leaving the USD at the mercy of the US bond yields. Apart from this, fresh developments surrounding the coronavirus saga and the broader market risk sentiment should allow traders to grab some short-term opportunities around the NZD/USD pair.

Technical levels to watch