NZD/USD approaches 0.5885 lows on strong US Dollar, downbeat data from China

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The New Zealand Dollar recovery attempt against its US counterpart was capped at the 0.5940 area earlier today, and the pair has given away gains during Thursday’s European session, retreating to levels right above multi-month lows, at 0.5885.

The New Zealand Dollar gives away its previous gains and drifts closer to multi-month lows at 0.5885.
Weak manufacturing data from China has capped the Kiwi's recovery attempts earlier today.
The US Dollar remains bid with investors bracing for US PCE inflation and Nonfarm Payrolls figures.

The Kiwi remains on its back foot following a 2.5% sell-off during the last five days as the US Dollar appreciates across the board amid a combination of strong data, dwindling hopes of Fed cuts, and a slew of deals that have eased concerns about trade uncertainty.

The Federal Reserve stood pat on Wednesday and gave few clues about the timing of the next rate cut, prompting investors to dial back expectations of monetary easing for this year. Fed Chairman Powell reiterated his call for patience until the real impact of tariffs is evidenced, which, he reckoned, might take months. The US Dollar appreciated across the board following Powell's Press release.

Beyond that, manufacturing activity data from China, New Zealand’s leading trading partner, contracted beyond expectations as foreign demand lost steam while domestic demand remains weak. The NBS Manufacturing PMI fell to 49.3 in July, from 49.7 in June, against expectations of a steady reading, which increased negative pressure on China proxies, such as the New Zealand Dollar.

In the US, the focus today is on July’s PCE Inflation release. Price pressures are seen accelerating to 2.5% year-on-year r, from the previous 2.3% although the Core PCE is likely to have remained unchanged at 2.7%. These figures might keep the IS Dollar underpinned, at least until Friday’s Nonfarm Payrolls report.

Economic Indicator

Personal Consumption Expenditures - Price Index (YoY)

The Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The YoY reading compares prices in the reference month to a year earlier. Price changes may cause consumers to switch from buying one good to another and the PCE Deflator can account for such substitutions. This makes it the preferred measure of inflation for the Federal Reserve. Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Economic Indicator

Core Personal Consumption Expenditures - Price Index (YoY)

The Core Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The PCE Price Index is also the Federal Reserve’s (Fed) preferred gauge of inflation. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The core reading excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures." Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Why it matters to traders?

After publishing the GDP report, the US Bureau of Economic Analysis releases the Personal Consumption Expenditures (PCE) Price Index data alongside the monthly changes in Personal Spending and Personal Income. FOMC policymakers use the annual Core PCE Price Index, which excludes volatile food and energy prices, as their primary gauge of inflation. A stronger-than-expected reading could help the USD outperform its rivals as it would hint at a possible hawkish shift in the Fed’s forward guidance and vice versa.

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