NZD/USD keeps the red near three-week lows, holds above 0.7000 mark

• A combination of factors continued dragging NZD/USD lower for the third successive day.
• Hawkish Fed expectations pushed the USD to one-month tops and exerted some pressure.
• The risk-off mood further collaborated to drive flows away from the perceived riskier kiwi.

The NZD/USD pair remained depressed through the first half of the European session and was last seen trading near three-week lows, just above the key 0.7000 psychological mark.

The pair extended last week's bearish breakout momentum below the 0.7075 horizontal support and witnessed heavy selling for the third successive day amid a broad-based US dollar strength. Expectations for an imminent Fed taper announcement continued acting as a tailwind for the USD, which got an additional boost from the risk-off impulse in the markets.

The incoming US macro data pointed to the continuation of the economic recovery and convinced investors that the Fed would begin rolling back its massive pandemic-era stimulus sooner rather than later. This, in turn, was seen as a key factor behind the recent strong rally in the US Treasury bond yields and lifted the key USD Index to near one-month tops on Monday.

Meanwhile, investors remain worried about the fast-spreading Delta variant and a global economic slowdown. This, along with the looming catastrophe at indebted developer China Evergrande, took its toll on the risk sentiment. Politics added extra uncertainty ahead of this week's Federal elections in Canada and Germany and triggered a selloff in the equity markets.

This further benefitted the greenback's relative safe-haven status and drove flows away from the perceived riskier kiwi. That said, oversold RSI on hourly charts held traders from placing fresh bearish bets. This, in turn, assisted the NZD/USD pair to find some support and defend the 50-day SMA amid absent relevant market moving economic releases from the US.

The market focus remains on the outcome of a two-day FOMC monetary policy meeting starting on Tuesday for clues about the likely timing of the Fed's plan to taper its bond purchases. This will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the NZD/USD pair.

Technical levels to watch