• NZD/USD gains ground due to risk-on mood following August’s US Consumer Price Index data released on Wednesday.
• The headline US inflation dropped to a three-year low, increasing the odds of a Fed 25 basis points rate cut.
• The upside of the Kiwi Dollar could be limited as RBNZ may implement additional rate cuts by the end of 2024.

NZD/USD retraces its recent losses registered in the previous session, trading around 0.6150 during the Asian hours on Thursday. The upside of the NZD/USD pair could be attributed to improved risk sentiment amid rising expectations of a 25-basis points rate cut by the Fed in September.

August’s US Consumer Price Index (CPI) data showed that headline inflation dropped to a three-year low, although core inflation exceeded expectations. This development has heightened the likelihood that the Federal Reserve (Fed) will begin its easing cycle with a 25-basis points interest rate cut in September.

The US Consumer Price Index dipped to 2.5% year-on-year in August, from the previous reading of 2.9%. The index has fallen short of the expected 2.6% reading. Meanwhile, headline CPI stood at 0.2% MoM. Core CPI ex Food & Energy, remained unchanged at 3.2% YoY. On a monthly basis, core CPI rose to 0.3% from the previous 0.2% reading.

According to the CME FedWatch Tool, markets are fully anticipating at least a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting. The likelihood of a 50 bps rate cut has sharply decreased to 15.0%, down from 44.0% a week ago.