NZD/USD surrenders modest intraday gains, holds above 0.5900 amid weaker USD

• NZD/USD struggles to preserve its modest intraday gains, though the downside remains limited.
• The risk-on impulse prompts some USD profit-taking and lends support to the risk-sensitive Kiwi.
• The lack of follow-through buying warrants some caution before positioning for any further gains.

The NZD/USD pair attracts some sellers following an intraday uptick to the 0.5935 area on Friday and has now surrendered its modest intraday gains. Spot prices, however, manage to hold above the daily trough, around the 59.00 mark, which represents the 200-hour Simple Moving Average (SMA) and should act as a pivotal point for intraday traders.

In the meantime, a generally positive tone around the equity markets, bolstered by more stimulus from China, undermines the safe-haven US Dollar (USD) and should lend some support to the risk-sensitive Kiwi. The People’s Bank of China (PBoC) lowered the Reserve Ratio Requirements for local lenders by 25 bps. This is the second such move this year and is expected to release more liquidity, which should potentially shore up growth in the world's second-largest economy. Adding to this, China reported better-than-expected Industrial Production and Retail Sales figures for August, which further investors' appetite for riskier assets.

Despite the aforementioned supporting factors, the NZD/USD pair, so far, has been struggling to gain any meaningful traction. Furthermore, firming expectations that the Federal Reserve (Fed) will stick to its hawkish stance favour the USD bulls. This, in turn, warrants some caution before placing aggressive bullish bets around the pair positioning for an extension of the recent recovery from the 0.5860-0.5855 region, or the YTD low touched last week. The incoming upbeat US macro data continue to point to a resilient economy. This, along with still-sticky inflation, supports prospects for one more 25 bps Fed rate hike move by the end of this year.

Hence, strong follow-through buying beyond the overnight swing high, around the 0.5945 region, is needed to confirm that the NZD/USD pair has formed a near-term bottom. Market participants now look to the US economic docket, featuring the release of the Empire State Manufacturing Index and Prelim Michigan Consumer Sentiment Index later during the early North American session. The data might influence the USD price dynamics, which, along with the broader risk sentiment, should contribute to producing short-term trading opportunities on the last day of the week. Nevertheless, spot prices remain on track to register modest weekly gains.

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