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.

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.