NZD/USD erases earlier losses, posts modest gains around 0.6970

• NZD/USD reversed its direction after falling in Asian session.
• US Dollar Index stages modest rebound following three-day slide.
• Investors await Markit and ISM Services PMI data from the US.

The risk-averse market environment allowed the greenback to find demand during the Asian trading hours on Tuesday and caused the NZD/USD pair to drop to a fresh daily low of 0.6928. During the European session, however, the positive shift witnessed in market sentiment helped the pair erase its losses. As of writing, the pair was up 0.07% on the day at 0.6968.

Eyes on US data, RBNZ policy announcements

Reflecting the improving market mood, major European equity indexes are up between 0.35% and 0.7% on the day while US stock futures rise around 0.4%. 

Meanwhile, the US Dollar Index, which closed the previous three trading days in the negative territory, pulled away from the daily top it touched at 94.04 and was last seen clinging to modest gains at 93.94.

Later in the session, the IHS Markit and the ISM will be releasing the September PMI reports. Investors expect the economic activity in the service sector to show an ongoing expansion but market participants will keep a close eye on inflation and employment components. 

On Wednesday, the Reserve Bank of New Zealand will announce its monetary policy decisions. Previewing this event, "we believe the New Zealand economy no longer requires the extreme monetary stimulus a 0.25% OCR provides, and that the current lockdown should not leave a discernible scar on the economic front," said Lee Sue Ann, an economist at UOB Group. "Unless the country heads into a prolonged lockdown, a hike in October is very likely."

Technical levels to watch for