NZD/USD hovers around 0.6150 ahead of US CPI release

• NZD/USD pares its intraday losses ahead of the release of US Consumer Price Index data.
• The lower US Treasury yields put downward pressure on the US Dollar.
• Morgan Stanley's Robin Xing emphasizes the greater need for China to implement stimulus measures to overcome the debt-deflation challenge.

NZD/USD trims its intraday losses, trading around 0.6150 during the Asian session on Wednesday. The US Dollar (USD) faces challenges as the US Treasury yields continue to decline ahead of the US Consumer Price Index (CPI) data scheduled to be released later in the North American hours. This inflation report may offer fresh cues regarding the potential magnitude of the Federal Reserve's (Fed) interest rate cut in September.

The US Dollar Index (DXY), which measures the value of the US Dollar against six other major currencies, halts its three-day winning streak. The DXY trades around 101.40 with 2-year and 10-year yields on US Treasury bonds standing at 3.57% and 3.62%, respectively, at the time of writing.

However, last week's US labor market report raised uncertainty over the likelihood of an aggressive interest rate cut by the Federal Reserve (Fed) at its September meeting. According to the CME FedWatch Tool, markets are fully anticipating at least a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting. The likelihood of a 50 bps rate cut has slightly decreased to 31.0%, down from 38.0% a week ago.

Morgan Stanley's Chief China Economist, Robin Xing, stated that China is undoubtedly experiencing deflation, likely in the second stage of the process. Xing noted that Japan's experience suggests that the longer deflation persists, the greater the need for China to implement significant stimulus measures to overcome the debt-deflation challenge, per Business Standard. Any change in the Chinese economy could impact the Kiwi markets as both countries are close trade partners.

UOB Group FX strategists Quek Ser Leang and Peter Chia observed that the New Zealand Dollar (NZD) could potentially break below 0.6115, though it is highly unlikely that the support at 0.6085 will come into play. They also noted that as long as the NZD remains below 0.6220, a break below 0.6150 is possible.

Read the full article: NZD/USD can break below 0.6115 - UOB Group