NZD/USD reclaims the 0.5900 area amid the weaker USD, eyes on US CPI

• NZD/USD holds above the 0.5900 area amid the declining US Treasury bond.
• The fear of China’s deflation faded as the Chinese inflation data improved in August.
• The encouraging US economic data last week lends support to the higher for longer interest rate narrative in the US.
• Traders will closely watch the US Consumer Price Index.

The NZD/USD pair recovers some lost ground and reclaims the 0.5900 mark during the early Asian trading hours on Monday. The absence of economic data on the US economic calendar and declining US Treasury bond yields weighed on the USD, providing support for the NZD/USD pair. The pair currently trades near 0.5901, gaining 0.31% on the day.

New Zealand’s Manufacturing Sales for the second quarter improved to 2.9% versus a 2.1% drop in the previous reading, Statistics New Zealand reported last week. Additionally, the ANZ Commodity Price for August fell to 2.9% from a 2.6% drop in July. The nation’s Terms of Trade Index improved to 0.4% in the second quarter, compared to a decline of 1.5% in the previous reading and an expected drop of 1.3%.

Apart from this, the fear of China’s deflation erased as the Chinese inflation data improved in August. This, in turn, lifts the China-proxy New Zealand Dollar (NZD) against the Greenback. Data released on Saturday revealed that Chinese inflation, measured by the Consumer Price Index (CPI) for August came in at 0.1% YoY versus a 0.3% drop in the previous reading, a worse-than-expected 0.2% rise. The monthly figure came in at 0.3%, as expected. Finally, the Producer Price Index (PPI) declined 3.0% YoY from a 4.4% drop in July and in line with estimates.

Across the pond, the encouraging US economic data last week lends support to the higher for longer interest rate narrative in the US. The markets have priced in a 93% chance of a rate hold at the September meeting and a 43.5% chance of a rate hike at the November meeting, according to the CME FedWatch Tool. The hawkish stance from the Federal Reserve (Fed) could boost the US Dollar and act as a headwind for the NZD/USD pair.

Later this week, the US Consumer Price Index for August and Retail Sales will be released on Wednesday and Thursday, respectively. There will be no top-tier economic data released from the New Zealand docket. However, the Chinese Retail Sales and Industrial Production data due on Friday might influence the Kiwi. Traders will take a cue from the figures and find trading opportunities for the NZD/USD pair.