NZD/USD has broken below its key support level on Tuesday as dollar's across-the-board strength weighed on the kiwi currency, and at a near 2 month low, the pair is now testing its 100-day SMA on the daily chart. Momentum indicators clearly suggest the pair is in the oversold zone but a strong technical reversal also need the support of good news from the Euro-zone, traders said.
However, a weak housing market data helped the pair pare most losses of the day in late US session. Data released by S&P/Case-Shiller at 14:00 GMT showed that prices rose 0.6 percent year-on-year in October, sharply below September's 1.7 percent rise and compared with the street estimate of 1.4 percent increase.
Within an hour, two better-than-expected data were out from the world's largest economy but they failed to help the greenback regain momentum, once again raising doubts about the currency's caliber to play safe-haven role in times of uncertainty.
The pair that fell as low as 0.7396 on the day, its lowest since October 5, bounced back to the 0.745 level by about 15:30 GMT, as a weak housing market data weighed.
More such negative signals from the US could turn things around. But the market really needs indications such as the spillover of European periphery debt issues would not be as serious as people feared for the risk appetite to return and push the NZD/USD pair back to 0.764 levels as suggested by the 23.6 percent Fibonacci.
On the downside, chart shows that NZD/USD has its next target around 0.7300 (S1) but beyond the round number attraction, it has got very little reason to hold, and further down, 0.727 (S2) could prove a strong support, as indicated by the 50 percent Fibonacci retracement from late May lows of the pair.
Data at 14:45 showed November Chicago PMI at 62.5, higher than market expectation of 60.2 and previous month's 60.6. Another release after 15 minutes showed consumer confidence in the world's largest economy increased more than expected in November. The index stood at 54.1 in the month, up from 49.9 of October and higher than market consensus of 52.9, Conference Board said.
At its lowest on Tuesday, the New Zealand dollar was down 0.82 percent from Monday's close and 3.8 percent weaker than its end-October levels.
Lingering Euro zone worries not only improved the relative investment appeal of the US currency but also meant a decline in investment interest in risky assets like NZD, helping keep the pair down for a third straight day.
Moreover, an unexpected drop in October building permits in the island nation helped offset advantages due to better-than-expected trade deficit and business confidence numbers, through the last two sessions.
The market is now waiting for Fed's Ben Bernanke, who is scheduled speak on the day.