NZD/USD sticks to modest intraday gains above mid-0.6000s, focus remains on US CPI

• NZD/USD gains some positive traction on Thursday, though the upside potential seems limited.
• Bets for more rate hikes by the Fed continue to underpin the USD and cap any meaningful gains.
• Traders keenly await the latest US consumer inflation figures before placing fresh directional bets.

The NZD/USD pair attracts some buying near the 0.6040 area during the Asian session on Thursday and for now, seems to have snapped a two-day losing streak. Spot prices currently trade around the 0.6060-0.6065 zone, up nearly 0.20% for the day, though remain well within the striking distance of a two-month low touched on Tuesday.

A subdued US Dollar (USD) demand turns out to be a key factor lending support to the NZD/USD pair amid some repositioning trade ahead of the latest US consumer inflation figures, due later today. Apart from this, hopes for additional stimulus measures from China further benefit antipodean currencies, including the New Zealand Dollar (NZD). That said, growing concerns about the worsening economic conditions in China, fueled by the incoming weaker macro data, might keep a lid on any meaningful upside.

In fact, Chinese inflation figures released on Wednesday showed that the headline CPI turned negative for the first time since February 2021 and the Producer Price Index (PPI) fell for the 10th consecutive month in July. This comes on the back of rather disappointing trade data on Tuesday and suggested that the post-COVID economy recovery is losing steam. Adding to this, the prospects for further policy tightening by the Federal Reserve (Fed) limit the USD downside and might contribute to capping the NZD/USD pair.

Market participants now seem convinced that the US central bank will stick to its hawkish stance and keep interest rates higher for longer amid expectations of a soft landing for the resilient domestic economy. This, in turn, remains supportive of elevated US Treasury bond yields and favours the USD bulls. Traders, however, seem reluctant to place aggressive bets and look to the US CPI report for clues about the Fed's rate-hike path. This, in turn, will drive the USD demand and provide a fresh impetus to the NZD/USD pair.

Technical levels to watch