NZD/USD breaks strongly above 0.6000 amid weak US CPI data

NZD/USD rose to around 0.6035 in early Asian trading on Thursday. Lower-than-expected U.S. inflation data and rising expectations for a rate cut by the Federal Reserve (Fed) in September exerted some selling pressure on the dollar. The U.S. Producer Price Index (PPI) and weekly initial jobless claims will be in focus later on Thursday.

U.S. inflation fell short of expectations for the fourth consecutive month in May, putting pressure on the U.S. dollar (USD). Data released by the U.S. Bureau of Labor Statistics (BLS) on Wednesday showed that the Consumer Price Index (CPI) rose 2.4% year-on-year in May, compared with 2.3% in the previous month. The data was lower than the market's expectation of 2.5%. The core CPI, which excludes volatile food and energy prices, rose 2.8% year-on-year in May, compared with a consensus of 2.9%.

Lower-than-expected U.S. inflation in May prompted traders to increase their bets on a rate cut by the Federal Reserve (Fed). Short-term interest rate futures traders are pricing in a nearly 68% probability that the Fed will cut interest rates by 25 basis points (bps) in September, compared with 57% before the release of the U.S. CPI data. They also now see a still-small but rising chance of a rate cut, with the odds for a July rate cut at about 18%, compared with about 13% earlier on Wednesday.

U.S. President Donald Trump said the trade deal with China is "done," despite a lack of details and confirmation from China. In addition, U.S. Commerce Secretary Howard Lutnick said tariffs on China will remain at the current 55% with no additional increases. Positive developments surrounding U.S.-China trade talks also supported the New Zealand dollar, which is a proxy for China, as China is New Zealand's main trading partner.