NZD/USD rebounds towards 0.6100 ahead of China inflation

• NZD/USD picks up bids to reverse the previous day’s losses.
• Fed’s Powell backed strong fight against inflation, New Zealand data came in firmer.
• US-China headlines entertain traders ahead of China CPI/PPI.

NZD/USD pares the previous day’s losses as it picks up bids to 0.6065 during Friday’s Asian session. In doing so, the Kiwi pair cheers recently flashed New Zealand (NZ) data, as well as the cautious optimism in the market ahead of China inflation data.

NZ Electronic Card Retail Sales for August grew 0.9% MoM and 26.9% YoY while comparing to -0.2% and -0.5% previous readings.

On a different page, market sentiment improves on headlines from the US, as well as hopes that global policymakers will be able to overcome inflation-heat with a holistic battle.

That said, the US 10-year Treasury yields remain sidelined near 3.32%, after a positive day, whereas the S&P 500 Futures traces Wall Street’s gains.

It should be noted that comments from US Treasury Secretary Janet Yellen, signaling likely positive change in the US-China trade ties, seemed to have helped the market sentiment and Antipodeans of late. However, the Wall Street Journal’s (WSJ) piece challenges the optimism a bit.

“US Treasury Secretary Yellen sees lower gas prices putting downward pressure on US inflation,” said Reuters. The news also mentioned that “Asked whether the Biden administration was still considering removing some tariffs on Chinese imports as a way to lower costs, Yellen said that President Joe Biden was still considering the issue.”

Fed Chairman Jerome Powell said on Thursday that they need to act forthrightly and strongly on inflation, as reported by Reuters. "We think by our policy moves we will be able to put growth below trend and get labor market back into better balance," added Fed’s Powell.

Talking about the US data, a sustained decline in the US Weekly Initial Jobless Claims to the lowest levels since May, with the latest figures beyond 222K, joins recent headlines suggesting improvement in the US-China trade ties, favoring the market sentiment.

That said, the market’s cautious optimism is likely to underpin NZD/USD recovery but China’s Consumer Price Index (CPI) and Producer Price Index (PPI) for August will be important amid talks over the recession. Following that, the next week’s US inflation data and New Zealand Gross Domestic Product (GDP) will be crucial for clear directions.

Technical analysis

A two-week-old bearish channel, currently between 1.6080 and 0.5970, could challenge the NZD/USD pair’s recent rebound.