NZD/USD flat lines around 0.6170-75 area, just above two-week low set on Friday

NZD/USD struggles to lure buyers amid a modest USD uptick and a softer risk tone.
The mixed Chinese inflation figures do little to impress bulls or provide any impetus.
The fundamental backdrop warrants caution before placing aggressive directional bets.

Haresh Menghani FXStreet

The NZD/USD pair fails to capitalize on a modest Asian session uptick and currently trades around the 0.6175-0.6170 region, just above the two-week low set on Friday.

The US Dollar (USD) gains positive traction on the first day of a new week and builds on Friday's recovery from over a one-week low, which, in turn, is seen acting as a headwind for the NZD/USD pair. The mixed US jobs data forced investors to scale back their expectations for a larger interest rate cut by the Federal Reserve (Fed) in September. This leads to a modest uptick in the US Treasury bond yields, which, along with a softer risk tone, underpins the safe-haven Greenback.

The closely-watched US Nonfarm Payrolls (NFP) provided further evidence of a sharp deterioration in the labor market and fueled concerns about a slowdown in the world's largest economy. This, in turn, tempers investors' appetite for riskier assets, which is seen benefiting traditional safe-haven currencies and keeping a lid on any meaningful upside for the risk-sensitive Kiwi. The markets, meanwhile, reacted little to the latest Chinese inflation figures released earlier this Monday.

In fact, China’s headline Consumer Price Index (CPI) came in at 0.4% MoM in August and rose at an annual pace of 0.6%, up slightly from the 0.5% growth reported in the previous month. This, however, was below consensus estimates for a reading of 0.7%. Adding to this, China's Producer Price Index (PPI) declined 1.8% YoY during the reported month as compared to the 0.8% drop registered in July and was worse than the market forecast of -1.4%.

It, however, remains to be seen if the USD can build on the momentum amid growing acceptance that the Fed will start its rate-cutting cycle at the September 17-18 policy meeting. Moreover, the aforementioned fundamental backdrop makes it prudent to wait for strong follow-through selling before positioning for an extension of the recent corrective decline from the vicinity of the 0.6300 round-figure mark, or the highest level since early January touched last month.

Economic Indicator

Consumer Price Index (YoY)

The Consumer Price Index (CPI), released by the National Bureau of Statistics of China on a monthly basis, measures changes in the price level of consumer goods and services purchased by residents. The CPI is a key indicator to measure inflation and changes in purchasing trends. The YoY reading compares prices in the reference month to the same month a year earlier. Generally, a high reading is seen as bullish for the Renminbi (CNY), while a low reading is seen as bearish.

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