New Zealand Dollar holds gains around 0.5850, favoured by a softer US Dollar

The New Zealand Dollar (NZD) has retraced previous losses and extends gains for the third consecutive day against the US Dollar (USD) on Thursday. The NZD/USD pair has reached the 0.5850 area, supported by a weakening Greenback, as markets dial down hopes of a Federal Reserve rate hike in July.

Data released in the US on Wednesday revealed that the Producer Price Index (PPI) contracted 0.3% in June, against expectations of a flat reading, and following a 0.6% increase in May. The yearly PPI eased to 5.5% from 6% in May, rather than accelerating to 6.2% as the market consensus had anticipated.

These figures follow a similarly soft Consumer Prices Index (CPI) release on Tuesday, and have slashed market hopes of a July rate hike to 10%, from 24% one week ago, while the odds for a September hike have been trimmed to 52% from 62% on the previous week, as measured by the CME's FedWatch Tool.

Later in the day, the focus will be on the US Retail Sales, which are expected to have slowed in June, although the control group is seen growing at a solid 0.5% pace. In the current context of ebbing inflationary pressures, signs of weakening consumer demand would dampen Fed tightening hopes further and add bearish pressure on the US Dollar.

The Kiwi, on the other hand, has rallied nearly 3% since the Reserve Bank of New Zealand hiked its Official Cash Rate by 25 basis points last week, and hinted at further monetary tightening in the coming months. Investors are now pricing two further rate hikes this year, which is boosting the Kiwi Dollar against its main peers.