The NZD/USD pair declined on Monday after posting gains for the previous two sessions, trading near 0.5880 during European hours. The New Zealand Dollar (NZD) came under pressure as investors remained cautious about the Reserve Bank of New Zealand’s (RBNZ) future policy direction. This weakness emerged despite the central bank raising its official cash rate for a second consecutive meeting last week.

Market participants appear increasingly uncertain about the RBNZ’s next steps, limiting the Kiwi’s ability to extend its recent recovery. Nevertheless, further losses in NZD/USD could be constrained by renewed weakness in the US Dollar (USD), which has been affected by broader market uncertainty ahead of the upcoming US inflation release.

Goldman Sachs suggested that a softer-than-expected Consumer Price Index (CPI) reading could reduce the likelihood of a Federal Reserve rate increase. This possibility remains relevant even though recent US employment figures strengthened the case for tighter monetary policy. According to the US Bureau of Labor Statistics, Nonfarm Payrolls rose by 162,000 in August, substantially above the market expectation of 56,000. At the same time, the unemployment rate remained unchanged at 4.1%.

With the labor market demonstrating resilience, investors have shifted their attention toward inflation as the next major indicator for the Federal Reserve’s policy decision. Deutsche Bank emphasized that the upcoming CPI report will be particularly important in determining the direction of US interest-rate expectations.

The bank’s US economists anticipate a significant acceleration in headline inflation. They forecast monthly headline CPI growth of 0.38% in August, compared with only 0.07% in July. Core CPI, which excludes food and energy prices, is expected to increase by 0.21% month-on-month, broadly similar to July’s 0.22% reading.

A hotter CPI report could strengthen expectations for Fed tightening and weigh further on NZD/USD, while softer inflation may support the pair by weakening the USD.

Trade Idea: Consider buying NZD/USD near 0.5860, targeting 0.5920, with a stop-loss below 0.5820 if US inflation disappoints markets.