NZD/USD corrects further from YTD high, tests 0.6800 mark amid risk-off
|- NZD/USD witnessed selling for the second straight day and moved further away from the 2022 high.
- The global flight to safety continued underpinning the USD and exerted some downward pressure.
- Sustained weakness below the 0.6800 mark should pave the way for a deeper corrective pullback.
The NZD/USD pair dropped to a fresh daily low during the early European session, with bears now awaiting sustained break below the 0.6800 round-figure mark.
The pair witnessed some selling for the second straight day on Tuesday and extended the overnight sharp pullback from the 200-day SMA, around the 0.6925 area, or the highest level since November 2021. The latest leg down could be attributed to the emergence of fresh buying around the US dollar, which continued drawing support from the global flight to safety.
The Russia-Ukraine war remained the dominating theme in the markets and showed no signs of ending. In fact, Russian jets continued to drop bombs near the Ukrainian capital Kyiv and the third round of ceasefire talks ended without much progress. Apart from this, fears of a major inflationary shock weighed on investors' sentiment and benefitted the safe-haven USD.
Apart from this, the recent monster gains in commodity prices have been fueling fears of stagflation and forced investors to continue dumping riskier assets. The anti-risk flow was evident from an extended sell-off in the global equity markets. This, along with a rise in the US Treasury bond yields, acted as a tailwind for the buck and weighed on the NZD/USD pair.
Given that the overnight failure near a technically significant moving average, the subsequent decline suggests that a week-long rally in the commodity-linked kiwi might have run out of steam. Some follow-through selling below the 0.6800 mark will reaffirm the outlook and prompt aggressive technical selling around the NZD/USD pair, paving the way for a deeper correction.
There isn't any major market-moving economic data due for release from the US on Tuesday, leaving the USD at the mercy of fresh developments surrounding the Russia-Ukraine saga and the US bond yields. Apart from this, traders will take cues from the broader market risk sentiment to grab some short-term opportunities around the NZD/USD pair.
Technical levels to watch
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