NZD/USD retreats to 0.7200 as DXY rebounds modestly

• NZD/USD lost its traction after rising to 0.7230.
• US Dollar Index recovered above 89.50 ahead of US data.
• Wall Street's main indexes look to open in the positive territory.

The NZD/USD pair edged higher during the first half of the day and closed in on the multi-year high it set at 0.7242 last week. However, the pair lost its traction in the last hour and erased a portion of its daily gains. As of writing, NZD/USD was up modestly on the day at 0.7205.

USD starts 2021 on a weak note

The risk-on market environment on the first trading day of 2021 helped the risk-sensitive NZD gather strength against its rivals. Meanwhile, the data from China showed that the business activity in the manufacturing sector continued to expand in December and provided an additional boost to the kiwi.

On the other hand, the USD struggled to find demand as a safe-haven at the start of the week. The US Dollar Index (DXY) slumped to a fresh multi-year low of 89.42 earlier in the day but staged a technical correction ahead of the Manufacturing PMI data. At the moment, the DXY is losing 0.42% at 89.55. 

Nevertheless, the lack of fundamental drivers behind the DXY recovery suggests that the bearish pressure is likely to remain intact with Wall Street's main indexes starting the day in the positive territory. The S&P 500 Futures are currently up 0.4%. 

Meanwhile,  Atlanta Fed President Raphael Bostic and Chicago Federal Reserve Bank President Charles Evans are scheduled to deliver speeches at 1500 GMT.

Technical levels to watch for