NZD/USD struggles to recover above 0.72 as DXY stays near mid-93s

The NZD/USD pair started the week under pressure and dropped to its lowest level since early September at 0.7166 in the European session. Although the pair tried to stage a modest recovery from that level, it lost its momentum before testing the 0.72 handle and was last seen trading at 0.7190, losing 0.5% on the day.

The pair's price action on Monday seems to be driven by a broad-based USD strength. After closing the previous week a little below the 93 mark, the DXY gained traction on Monday and advanced to mid-93s as the political turmoil in the euro area allowed the buck to rise against its European counterparts such as the shared currency, the GBP, and the CHF. As of writing, the index was at 93.40, up 0.5% on the day.

Later in the session, Markit and ISM will be releasing their PMI data for the manufacturing sector in the United States. Markets expect the data to remain unchanged at 53 (ISM) and 58.8 (Markit) in September. A higher-than-expected reading could provide an additional boost to the greenback, weighing on the NZD/USD pair. However, the fact that major equity indexes in the U.S. point to a higher opening could help the risk-sensitive kiwi keep its losses against the buck limited.

Technical outlook

With today's drop, the RSI indicator on the daily graph turned south below the 50 mark, suggesting that the bearish momentum is building up. 0.7150 (200-DMA) is a critical support, and a daily close below that level could allow for further losses towards 0.7100 (psychological level) and 0.7055 (Jun. 1 low). On the upside, 0.7200 (psychological level) is the immediate resistance ahead of 0.7260 (50-DMA) and 0.7295/0.7300 (100-DMA/psychological level). 

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