NZD/USD gains traction above 0.6100, eyes on US data

• NZD/USD gains ground near 0.6120 in Thursday’s early Asian session.
• US inflation declined to 3.4% in April, prompting traders to increase their bets on the Fed’s rate cuts this year.
• The RBNZ interest rate decision next week will be in the spotlight, with no change in the OCR rate expected. 

The NZD/USD pair gains momentum around 0.6120 during the early trading hours on Thursday. The softer US CPI in April has prompted the prospect of rate cuts from the Federal Reserve (Fed) this year, which exerts some selling pressure on the Greenback. The US housing data, the weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, and Industrial Production will be due later in the day. 

Inflation in the United States showed signs of cooling after the US Bureau of Labor Statistics (BLS) reported on Wednesday. The CPI rose by 3.4% YoY in April, compared to March’s reading of 3.5%, in line with the estimation. The core CPI inflation, which excludes volatile items like food and energy, eased from 3.8% in March to 3.6% in April as expected. Furthermore, US Retail Sales came in at 0% MoM in April, below the market consensus of 0.4%. In response to the softer inflation data and weaker Retail Sales, the US Dollar (USD) loses ground to near five-week lows of 104.20. 

Investors anticipate that the Fed will wait for more data to gain confidence that inflation will return to the Fed’s 2% target. The Federal Reserve (Fed) Chairman Jerome Powell said on Tuesday that inflation is falling slower than expected, and the PPI data provided more justification to keep rates higher for longer.

On the Kiwi front, the markets believe that it is unlikely that the RBNZ will cut its interest rate before the Fed, which boosts the New Zealand Dollar (NZD) and create a tailwind for the NZD/USD pair. The Reserve Bank of New Zealand (RBNZ) interest rate decision next week will be closely watched. The RBNZ is anticipated to hold the Official Cash Rate (OCR) unchanged at 5.5% at its May meeting and likely to remain comfortable with the forward outlook communicated in the February meeting, said Westpac analyst.