NZD/USD loses ground below 0.5900 on renewed US Dollar demand

• NZD/USD softens to around 0.5870 in Friday's Asian session.
• China's CPI dropped 0.4% YoY in August as factory deflation deepened. 
• Markets expect the Fed to start rate cuts at its September meeting next week. 

The NZD/USD pair loses ground to near 0.5870 during the Asian trading hours on Friday. The pair edges lower on a modest rebound in the US Dollar (USD) and deflationary pressures in China. Traders will keep an eye on the University of Michigan Consumer Sentiment Index data, which will be released later on Friday. 

China's Consumer Price Index (CPI) slipped back into decline in August, suggesting persistent deflationary pressures. The National Bureau of Statistics of China revealed on Wednesday that the CPI, a key gauge of inflation, fell 0.4% year-on-year last month, worse than market expectations of a 0.2% decline. China faces deflationary pressures as weak domestic demand and industrial oversupply weigh on prices. 

It's worth noting that 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, as China is a major trading partner of New Zealand. 

The US Consumer Price Index (CPI) inflation rose more than expected in August, while the annual increase in inflation was the largest in seven months. However, the figures were not as high as the market expected, supporting the view that the US Federal Reserve (Fed) will resume cutting interest rates next week. The prospect of Fed rate reductions could undermine the Greenback and help limit the pair's losses in the near term. 

"The CPI didn't come in as high as the market expected. Ultimately, the biggest concern ... is that the dovishness that comes with the weak jobs numbers is going to be unwound if CPI accelerates more than expected," said Eugene Epstein, head of trading and structured products, North America, at Moneycorp in New Jersey.