NZD/USD strengthens to near 0.5950 ahead of US PPI release

• NZD/USD edges higher to around 0.5945 in Wednesday's early European session. 
• Traders raise their bets that the Fed will lower the borrowing costs at its September 16-17 policy meeting. 
• China's CPI dipped 0.4% last month from a year earlier, worse than the forecast. 

The NZD/USD pair attracts some buyers near 0.5945 during the early European session on Wednesday. The prospect of a jumbo rate cut from the US Federal Reserve (Fed) undermines the US Dollar (USD) against the New Zealand Dollar (NZD). Traders brace for the US Producer Price Index (PPI) inflation data for August later on Wednesday for fresh impetus.

The greenback struggles to gain ground as mounting concerns over a cooling US labor market fuel expectations of Fed rate reductions as soon as next week. Annual revisions to Nonfarm Payrolls (NFP) data for the year prior to March 2025 showed a fall of 911,000 from the initial estimate.

Traders are increasingly anticipating stronger Fed easing. Money markets have fully priced in a 25 basis points (bps) rate cut, while the possibility of a larger 50 bps reduction has also risen to nearly 12%, according to the CME FedWatch tool.

"The bar for a 50 bp move is high, there would likely need to be a clear downside surprise in core inflation to give doves cover," said Kieran Williams, head of Asia FX at InTouch Capital Markets.

China's Consumer Price Index (CPI) inflation fell more than expected in August, while deflation in wholesale prices persisted, which might cap the upside for the pair. The country's CPI declined 0.4% YoY in August versus 0% prior, the National Bureau of Statistics of China reported Wednesday. This figure came in softer than the market expectation of -0.2%.

Meanwhile, China's Producer Price Index (PPI) declined 2.9% YoY in August, following a 3.6% fall in July, in line with the market consensus. China's CPI is often seen as a proxy for Chinese economic health. If the CPI is weak, it signals sluggish demand in the Chinese economy, weighing on the China-proxy Kiwi.