NZD/USD climbs to near one-month high as Greenback weakens after US CPI data

• NZD/USD extends gains to a near one-month high as the Greenback softens after US inflation data.
• RBNZ Governor Hawkesby flagged the OCR could fall toward 2.50% by year-end.
• Focus shifts to Friday’s releases with New Zealand’s BusinessNZ PMI and the preliminary University of Michigan consumer sentiment and inflation expectations surveys.

The New Zealand Dollar (NZD) edges higher against the US Dollar (USD) on Thursday, with NZD/USD extending gains for the second straight session after reversing earlier losses as the Greenback softened in the wake of the latest US inflation release.

At the time of writing, NZD/USD is trading near 0.5973, its strongest level since 14 August, up nearly 0.50% on the day. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, retreats from recent peaks and hovers around 97.50.

The latest US Consumer Price Index (CPI) report for August showed headline inflation rising 0.4% MoM, up from July’s 0.2% and slightly above the 0.3% consensus. On an annual basis, headline CPI held steady at 2.9%, matching expectations but up from 2.7% previously. Core CPI, which strips out volatile food and energy components, rose 0.3% MoM and 3.1% YoY, exactly in line with market forecasts and unchanged from the prior month.

The figures did little to alter market expectations that the Federal Reserve (Fed) will cut rates by 25 basis points at next week’s policy meeting, with traders nearly unanimous on the outcome.

On the domestic front, Reserve Bank of New Zealand (RBNZ) Governor Christian Hawkesby said earlier this week that the economy “stalled” mid-year, but inflation has returned to the 1-3% target band. He signaled that the Official Cash Rate (OCR) could fall toward 2.50% by year-end, though the pace of easing will depend on the strength of the recovery. Hawkesby also stressed that the central bank is facing a “test of trust and confidence” following recent leadership changes, while reaffirming the central bank’s focus on maintaining low and stable inflation.

Looking ahead, investors will focus on the BusinessNZ Manufacturing PMI for August, due Friday. July’s reading bounced back strongly to 52.8 from 48.8, returning to expansion territory for the first time in three months. A weaker print could weigh on the Kiwi, while another solid reading may reinforce the currency’s momentum.

In the United States, the focus will be on the University of Michigan’s preliminary surveys, including consumer sentiment, expectations, and 1-year and 5-year inflation outlooks.