NZD/USD declines to 0.5900 on downbeat Kiwi consumer inflation, US data eyed

• NZD/USD retraces recent gains after weaker economic data from New Zealand.
• Kiwi headline CPI (Q3) rose to 1.8%, compared to the 2.0% expected; the yearly rate decelerated.
• US Dollar could admire the improved US Treasury yields.

NZD/USD trades lower around 0.5900 during the early European session on Tuesday, pulling back from the recent gains following the release of downbeat consumer inflation data from New Zealand.

The headline CPI rose to 1.8% for the third quarter, compared to the 2.0% expected. The yearly rate decelerated to 5.6% from 6.0% in the previous quarter, and fell short of consensus estimates of 5.9% readings.

The data is compelling investors to reduce their expectations for an interest rate hike by the Reserve Bank of New Zealand (RBNZ) in November, putting downward pressure on the NZD/USD pair.

The Reserve Bank of New Zealand (RBNZ) unveiled its Sectoral Factor Model Inflation gauge. The inflation figures came in at 5.2% YoY in Q3 2023, marking a notable decline from the 5.7% recorded in Q2.

The US Dollar Index (DXY) recovers from the recent losses, trading higher around 106.40. Many Federal Reserve officials made dovish remarks about the Fed’s interest rates trajectory, which exerts pressure on the Greenback.

Federal Reserve Bank of Philadelphia President Patrick Harker echoed this sentiment on Monday, suggesting that the central bank should avoid introducing new economic pressures by increasing borrowing costs. Harker emphasized the view that unless there is a significant shift in the data, the Fed should maintain interest rates at their current levels.

US Treasury yields extend gains, with the 10-year US Treasury bond yield standing at 4.74%, by the press time.

Market participants will likely keep a close eye on the US Retail Sales data, and the Fed Beige Book report will also be a focal point on Tuesday. On Friday, New Zealand’s Trade Balance will be eyed.