NZD/USD falls to near 0.5950 due to increased risk-off mood ahead of US PMI

• NZD/USD depreciates due to increased risk aversion ahead of the release of ISM Manufacturing PMI.
• Fed Chair Jerome Powell stated that a rate cut in September is "on the table."
• The Kiwi Dollar may struggle as the latest inflation data raises expectations of an RBNZ’s rate cut by October.

NZD/USD retraces its two days of gains, trading around 0.5940 during the European session on Thursday. This decline is attributed to the improved US Dollar (USD) due to a recovery in US Treasury yields. Traders adopt caution ahead of ISM Manufacturing PMI and weekly Initial Jobless Claims from the United States (US), both set to be released later in the North American session.

However, the downside of the NZD/USD pair could be restrained as the US Dollar may face challenges due to the dovish sentiment surrounding the Federal Reserve’s (Fed) policy trajectory. At Wednesday’s policy meeting, the Fed decided to keep rates unchanged in the 5.25%-5.50% range.

Additionally, Federal Reserve Chairman Jerome Powell stated that a rate cut in September is "on the table," during a press conference. Powell added that the central bank will closely monitor the labor market and remain vigilant for signs of a potential sharp downturn, per Reuters.

However, the Federal Open Market Committee (FOMC) did not want to commit to anything in the statement. FOMC indicated in its statement that it does not foresee cutting rates until it has greater confidence that inflation is sustainably heading toward 2%. They require more progress on inflation before considering a cut in September unless a significant decline in the labor market begins to outweigh the slow progress on inflation.

Regarding the New Zealand Dollar (NZD), recent data from China, a close trade partner, showed that the Caixin Manufacturing Purchasing Managers' Index (PMI) for July came in at 49.8, missing the expected 51.5 and the previous reading of 51.8. This underperformance might have put pressure on the New Zealand Dollar (NZD).

Additionally, the NZD faces further pressure from expectations of an early interest rate cut by the Reserve Bank of New Zealand (RBNZ). This comes after data showed that the domestic annual CPI rate fell to its lowest level in three years for the June quarter. The RBNZ’s next policy meeting is scheduled for August 14, with markets currently pricing in a 36% chance of a rate cut and fully anticipating a move by October.