The NZD/USD pair finds some support near the 0.5880 area during the Asian session on Monday, attracting dip-buyers amid a softer US Dollar (USD). However, the pair lacks strong bullish conviction and trades around the 0.5900 round figure, close to the lowest level since early May touched last Thursday.

The US Personal Consumption Expenditures (PCE) Price Index data released on Friday indicated easing price pressures, reaffirming expectations that the Federal Reserve (Fed) might start cutting interest rates in December. This has led to a decline in US Treasury bond yields to a nearly two-week low, coupled with a risk-on sentiment, keeping USD bulls on the defensive. These factors have lent some support to the NZD/USD pair.

Despite the softer USD, persistent concerns about a slowdown in China—the world’s second-largest economy—continue to act as a headwind for antipodean currencies, including the New Zealand Dollar (NZD). Due to New Zealand’s strong trade ties with China, the Chinese economic outlook remains a significant factor influencing the NZD.

Rising expectations for an early interest rate cut by the Reserve Bank of New Zealand (RBNZ), bolstered by a weaker Consumer Price Index (CPI) report released last week, also cap the upside for the NZD/USD pair. The weaker inflation data has fueled speculation that the RBNZ may lower rates sooner than anticipated.

Traders are likely to remain cautious and avoid placing aggressive directional bets ahead of the outcome of the two-day Federal Open Market Committee (FOMC) policy meeting on Wednesday. The highly anticipated Fed decision, along with key US macroeconomic releases scheduled for the start of the new month, including the Nonfarm Payrolls report, will be crucial in determining the near-term direction of the USD. This, in turn, will provide meaningful impetus to the NZD/USD pair.

Trade Idea

Consider a short-term buy position on NZD/USD if it holds above 0.5880, targeting 0.5950 with a stop loss below 0.5850, to capitalize on potential recovery amid a softer USD and supportive technical levels.