The NZD/USD pair attracted some dip-buying during Monday’s Asian session, benefiting from a modest weakening of the US Dollar (USD). However, the pair has struggled to build momentum above the critical 0.5900 level.
Market participants are increasingly confident that the Federal Reserve will pursue further interest rate cuts in response to easing inflationary pressures and expectations of prolonged sluggish US economic growth. Adding to the USD’s challenges, Moody’s downgraded the United States’ sovereign credit rating to “Aa1” last Friday, citing concerns over the mounting national debt. This development has weakened USD bulls and provided a tailwind for the Kiwi against the greenback.
Meanwhile, mixed economic data out of China has had little impact on the currency pair. According to the National Bureau of Statistics (NBS), China’s retail sales increased 5.1% year-over-year (YoY) in April—missing the 5.5% forecast and down from 5.9% in March. Industrial production outperformed expectations, growing 6.1% YoY versus the anticipated 5.5%, while fixed asset investment rose 4.0% year-to-date (YTD) YoY, below the 4.2% forecast and March’s reading.
Though the mixed Chinese data failed to provide significant impetus, ongoing optimism around the US-China trade truce continues to support antipodean currencies, including the New Zealand Dollar. Nonetheless, a recent shift in global risk sentiment is tempering bearish bets on the USD, capping gains for the NZD/USD pair.
Traders are advised to await decisive follow-through buying before committing to further long positions, as the upside remains limited amid cautious market conditions.
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