NZD/USD hits lows near 0.5625 amid weak New Zealand data, risk aversion

• The New Zealand Dollar drops 0.5% against the USD on Wednesday, reaching session lows at the 0.5625 area.
• Soft New Zealand producer prices have heightened hopes of an RBNZ interest rate cut next week.
• The US Dollar remains buoyed on safe-haven flows, awaiting the release of the FOMC minutes.

The risk-sensitive Kiwi Dollar is one of the worst performers on Wednesday amid the sour market sentiment and disappointing New Zealand data. The NZD retreated nearly 0.5% on the day against the US Dollar, reaching session lows at 0.5625, a few pips above the seven-month low of 0.5605. 

Earlier on Tuesday, New Zealand's official statistics office revealed that the Producer Price Index grew well below expectations, with Input prices increasing 0.2% in the three months to September, following a 0.6% increase in the previous quarter and undershooting market expectations of a 0.9% increment. Likewise, Output prices grew at a steady 0.6% rate against expectations of a mild acceleration to 0.7%

Producer prices data comes after the RBNZ confirmed that inflation expectations for the last quarter of the year remain anchored near 2% and that unemployment grew to 5.3% in Q3, its highest level in nine years. These figures have boosted investors' expectations that the central bank will cut interest rates further next week.

In the US, recent macroeconomic releases have not been particularly supportive either. Initial Jobless Claims and ADP Weekly numbers added to evidence of a weak labour market, which prompted investors to build up expectations of a Fed rate cut in December. The US Dollar, however, remains steady, favoured by safe-haven flows with investors awaiting the release of the FOMC minutes later on Wednesday and, above all, September's Nonfarm Payrolls report on Thursday.