NZD/USD corrects from 0.6100 as bearish sentiment renews ahead of US Inflation

• NZD/USD falls back sharply from 0.6090 as bearish sentiment revives.
• A rebound in US inflation would build more burden on households as their real income will squeeze.
• The impact of recovery in inflationary pressures in the Chinese economy starts fading.

The NZD/USD pair faces barricades around 0.6090 in the London session. The Kiwi asset fails to test the round-level resistance of 0.6100 as the US Dollar Index (DXY) attempts a recovery move after building a support base around 102.30. The USD Index might attempt to recapture the immediate resistance of 102.80 amid supportive economic indicators.

S&P500 futures add some gains in the London session. It seems a recovery attempt by US equities after a sell-off on Tuesday. US indices felt selling pressure as investors hoped that inflation could rebound due to a stellar recovery in global oil prices. This would build more burden on households as their real income will squeeze.

The US Dollar Index is expected to enjoy a cautious market ahead of Consumer Price Index (CPI) data, which will be published on Thursday at 12:30 GMT. Sticky inflation figures for July are expected by the market participants due to strengthening oil prices. Also, sustained wage growth indicates that consumer spending remains resilient due to higher income for disposal.

The risk-aversion theme fails to sustain for longer despite Federal Reserve (Fed) policymakers delivering neutral interest rate guidance. Philadelphia Fed Bank President Patrick Harker said the central bank is at the point where it can be patient and hold rates steady and let the monetary policy actions do their work.

Meanwhile, the impact of recovery in inflationary pressures in the Chinese economy starts fading. China’s National Bureau of Statistics (NBS) reported early Wednesday that monthly CPI expanded at a 0.2% pace in July while investors anticipated a deflation of 0.1%. Producer Price Index (PPI) continued to deflate at a higher pace, recorded at 4.4%, more than expectations of 4.1%.

Chinese producers struggle to raise prices at factory gates amid bleak demand and declining exports. In spite of higher monetary and fiscal stimulus by the People’s Bank of China (PBoC) and the Chinese authority respectively, economic growth is sluggish.

It is worth noting that New Zealand is one of the leading trading partners of China and its weak domestic demand impacts the New Zealand Dollar.