NZD/USD aims to recapture 0.6360 ahead of US/China Inflation

• NZD/USD is looking to reclaim 0.6360 as US debt ceiling talks are scheduled for Friday for further negotiations.
• US debt ceiling talks ended without a conclusion as Speaker McCarthy denied agreeing on default off the table.
• As per the consensus, China’s monthly inflation remained stagnant while annual inflation accelerated by 0.3%.

The NZD/USD pair has stretched its recovery to near 0.6336 in the early Asian session. The Kiwi asset is expected to remain on the tenterhooks as negotiations for US debt ceiling issues between US President Joe Biden and Speaker Kevin McCarthy are heating as the latter is not ready to agree to support debt ceiling raise without cutting spending initiatives.

At the White House official, US President Joe Biden has cited that McCarthy's spending cuts will hurt Americans. However, for a major development, investors have to wait till Friday as agreed but volatility will remain at elevated levels until both parties reach a conclusion.

Meanwhile, S&P500 futures have added minimal gains in the Asian session after a bearish Tuesday. Synergic uncertainty due to US debt ceiling talks and inflation figures capped the upside for US equities. The US Dollar Index (DXY) has recovered to near 101.65 and further action will be directed by inflation data. The overall market mood portrays caution as April’s US Consumer Price Index (CPI) data carries significant importance.

The Federal Reserve (Fed) has already conveyed that it will be more data-centric onwards. April’s Employment report has signaled that Fed chair Jerome Powell would keep interest rates higher for a longer period and now persistent inflationary pressures could fuel the need for more rate hikes ahead.

On Tuesday, New York Federal Reserve (Fed) Bank President John Williams cited that the central bank has not said that it’s done with raising rates. Fed policymaker doesn’t see any reason of rate cuts this year as tight credit conditions by commercial banks are not expected to knock out the economy.

On the New Zealand Dollar front, after recording slower growth in Chinese exports and weakness in domestic demand, investors are shifting their focus toward the inflation data (April). As per the preliminary report, monthly inflation is seen stagnant against March’s deceleration of 0.3%. Annual inflation is expected to accelerate by 0.3% at a slower pace vs. the prior release of 0.7%.

It is worth noting that New Zealand is one of the leading trading partners of China and higher inflation in China would signal strong domestic recovery, which might support the New Zealand Dollar.