NZD/USD recovers the recent losses near 0.5920, focus on RBNZ inflation, US Retail Sales

• NZD/USD moves upward on market hesitation over the Fed’s interest rate trajectory.
• US Dollar could receive flows due to the risk aversion over the Palestine-Israel conflict.
• Fed could halt interest rate-hike cycle due to higher US Treasury yields.

NZD/USD trades higher around 0.5920 during the early European session on Monday, recovering from the recent gains registered in the previous two trading sessions. The uncertainty regarding the Federal Reserve's (Fed) future decisions on interest rates is contributing support in underpinning the NZD/USD pair.

Furthermore, the Kiwi pair could lose ground due to the risk aversion over military conflict in the Middle East. Investors seeking refuge in a stable and secure currency may be contributing to the strength of the US Dollar (USD) in the current geopolitical landscape.

On the Kiwi’s front, on Monday, Business NZ PSI increased to the reading of 50.7 in September from the previous 47.7 figures. On Friday, New Zealand's Business NZ Purchasing Manager's Index (PMI) saw a decline to 45.3 compared to the previous reading of 46.1.

The Reserve Bank of New Zealand (RBNZ) committee reached a consensus that interest rates might need to be maintained at a restrictive level for an extended period. New Zealand’s Consumer Price Index (CPI) for the third quarter will be eyed on Tuesday, which could provide insights into the potential trajectory of the RBNZ's interest rate policy.

An undisclosed source, as reported by Reuters, has indicated that discussions have occurred between US officials and Israel regarding the potential visit of President Joe Biden to Israel. The invitation for this visit is said to have originated from Israeli Prime Minister Benjamin Netanyahu.

On Friday, the National Bureau of Statistics of China reported the Consumer Price Index (CPI) data for September, which registered at 0% (YoY), a decline from the previous reading of 0.1%. This figure fell short of the market consensus, which anticipated a 0.2% increase. Additionally, the Producer Price Index dropped to 2.5% from a 3% decline in August, missing the expectation of a 2.4% downturn.

During the previous week, Fed officials signaled a potential halt in a policy rate-hike cycle in November’s meeting as US bond yields surged highest since 2007, causing tightened financial conditions, is contributing to downward pressure for the USD.

The US Dollar (USD) faces challenges following the release of the preliminary US Michigan Consumer Sentiment Index for October on Friday, which fades the chances of another interest rate hike by the Fed. The report showed a decline to 63.0 from the previous reading of 68.1, falling short of the expected 67.4.

The US Dollar Index (DXY) trades slightly lower around 106.50. The recovery in US Treasury yields from recent losses may contribute to supporting the Greenback. The 10-year US Treasury bond yield stands at 4.68%, up by 1.58%, by the press time.

The upcoming release of US Retail Sales (MoM) on Tuesday is anticipated to show a 0.2% rise in September compared to the previous reading of 0.6%, and this data could influence market dynamics and the NZD/USD pair.