NZD/USD manages to hold above mid-0.5900s, seems vulnerable near multi-month low

• NZD/USD drops to over a three-month low as the USD buying remains unabated.
• The Trump trade optimism and elevated US bond yields lift the USD to the YTD top.
• Bets for aggressive RBNZ rate cuts and a potential US-China trade war weigh on Kiwi.

The NZD/USD pair prolongs its recent downward trajectory witnessed over the past week or so and drops to its lowest level since August 5, closer to mid-0.5800s on Thursday. Spot prices, however, rebound a few pips during the first half of the European session, though any meaningful recovery still seems elusive in the wake of broad-based US Dollar (USD) strength. 

Investors remain hopeful that US President-elect Donald Trump's policies will boost economic growth and the proposed plan to hike tariffs on imports could accelerate inflation. This, in turn, might force the Federal Reserve (Fed) to pause its easing cycle. Moreover, the US Consumer Price Index (CPI) released on Wednesday pointed to a slower progress toward bringing inflation down and could result in fewer rate cuts next year. This remains supportive of elevated US Treasury bond yields and lifts the USD to a fresh year-to-date (YTD) peak. 

The New Zealand Dollar (NZD), on the other hand, is undermined by rising bets for more aggressive interest rate cuts by the Reserve Bank of New Zealand (RBNZ). This, along with the disappointment over China's fiscal stimulus and looming US-China trade war, weighs on antipodean currencies, including the Kiwi, and contributes to the offered tone surrounding the NZD/USD pair. The downfall could further be attributed to some follow-through technical selling following the overnight sustained break and close below the 0.5900 round-figure mark.

This, in turn, suggests that the path of least resistance for the NZD/USD pair is to the downside and supports prospects for an extension of the recent sharp downfall from the YTD peak touched in September. Hence, any attempted recovery could be seen as a selling opportunity and runs the risk of fizzling out rather quickly. Traders now look to the US economic docket, featuring the usual Weekly Initial Jobless Claims and the Producer Price Index (PPI). This will be followed by Fed Chair Jerome Powell's speech, which should influence the USD.