NZD/USD drops to one-week lows, around 0.6970 area

• NZD/USD edged lower for the third consecutive session on Tuesday.
• Rising bets for an earlier Fed taper continued underpinning the USD.
• COVID-19 jitters also drove flows away from the perceived riskier kiwi.

The NZD/USD pair continued losing ground through the Asian session and dropped to one-week lows, around the 0.6970-65 region in the last hour.

The pair extended its recent rejection slide from the very important 200-day SMA and witnessed some follow-through selling for the third consecutive session on Tuesday. The downward trajectory was sponsored by sustained US dollar buying interest and worries about rising COVID-19 cases.

Friday's blockbuster US NFP report fueled speculations that the Fed could move more quickly to reduce its pandemic-era stimulus. Investors also brought forward the likely timing for the Fed policy tightening and have started pricing in the possibility of an interest rate hike, as soon as 2022.

The market speculations were reaffirmed by the recent strong positive move in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond surged past the 1.30% threshold on Monday in reaction to Atlanta Fed President Raphael Bostic's comments.

Speaking at an online event, Bostic said that the Fed could begin tapering between October and December, or even earlier if there is another month or two of strong job gains. This, in turn, was seen as a key factor that continued acting as a tailwind for the greenback.

Apart from this, investors remain worried about the economic fallout from the fast-spreading Delta variant of the coronavirus. This was evident from a generally softer tone around the equity markets, which further benefitted the safe-haven USD and weighed on the perceived riskier kiwi.

With the latest leg down, the NZD/USD pair has now reversed a major part of last week's positive move and seems vulnerable to slide further. In the absence of any major market-moving economic data, the USD price dynamics might turn out to be an exclusive driver of the pair's move.

Technical levels to watch