NZD/USD remains vulnerable around 0.5850 as US Dollar stays firm

• NZD/USD is expected to see more weakness as the US Dollar holds onto gains.
• Interest rate cuts from the Fed are expected to be slower and shallow.
• NZ Q3 producer inflation unexpectedly accelerated for both inputs and outputs.

The NZD/USD pair struggles to hold the immediate support of 0.5850 in the North American trading session on Monday. The Kiwi pair sees more downside as the US Dollar (USD) performs strongly across the board on expectations that the economic agenda of President-elected Donald Trump will boost inflationary pressures and spurt the overall growth.

Historically, the Federal Reserve (Fed) tends to slowdown its policy-easing cycle in a high-inflation environment.

Meanwhile, Fed Chair Jerome Powell also delivered slightly hawkish remarks in his speech at Federal Bank of Dallas event on Thursday. Jerome Powell said that the economy is not sending any signals that should compel the Fed to cut interest rates aggressively. However, he reiterated that the disinflation trend towards the bank’s target of 2% is intact and is allowing the central bank to push Federal Funds rate towards the neutral setting.

Powell refrained from providing any economic projections for the period when Trump will administer the office. Powell said, "I think it's too early to reach judgments here." He added, "We don't really know what policies will be put in place."

In the New Zealand region, the Producer Price Index (PPI) grew faster-than-expected in the third quarter of the year but failed to dent market expectations for more larger-than-usual interest rate cuts by the Reserve Bank of New Zealand (RBNZ). The PPI for output surprisingly accelerated to 1.5% from 1.1% in the second quarter of the year. Economists expected the producer inflation to have grown at a slower pace of 0.9%.

The RBNZ reduced its Official Cash Rate (OCR) by 50 basis points (bps) to 4.75% last month and is expected to do the same in its monetary policy meeting on November 27.