NZD/USD Dips Toward 0.5950 as China Deflation Fears Weigh and Fed Cut Bets Rise

NZD/USD Weakens Near 0.5950 on China Deflation Worries and Fed Policy Outlook

NZD under pressure during Asian session
The New Zealand Dollar (NZD) slipped against the US Dollar (USD) during early Wednesday trading, bringing the NZD/USD pair down to approximately 0.5950. The decline comes amid dual pressures: growing fears of deflation in China and increasingly dovish expectations for U.S. monetary policy.

China’s PPI signals weak demand
Adding to the downside momentum, China’s Producer Price Index (PPI) for July fell more than anticipated, highlighting weakening industrial demand and the broader impact of ongoing trade uncertainties. The deflationary signal from the world’s second-largest economy has weighed on sentiment across risk-sensitive currencies, including the Kiwi.

Fed rate cut bets intensify after CPI
Meanwhile, softer-than-expected U.S. inflation data has intensified speculation that the Federal Reserve could cut interest rates as early as September. The CPI for July, while slightly elevated on a monthly basis, is being interpreted by markets as a sign that inflation is not accelerating fast enough to prevent policy easing.

According to the CME FedWatch Tool, traders now see a 94% probability of a Fed rate cut next month — up from 85% just prior to the CPI release. The market is also pricing in increased odds for additional rate cuts in October and December.

Outlook dependent on Fedspeak
Investors are now closely monitoring upcoming comments from several Fed officials throughout the day for further clues on the central bank's stance. Any dovish hints could further weigh on the Greenback, though deteriorating risk sentiment tied to China might continue to limit NZD's upside.