NZD/USD remains on the defensive near 0.5600 ahead of Chinese CPI inflation data
- NZD/USD edges lower to near 0.5610 in Thursday’s early Asian session.
- Fed officials said they will slow the pace of rate cuts due to the uncertainty, minutes of the meeting showed Wednesday.
- Chinese December CPI inflation data will be released on Thursday.
The NZD/USD pair trades with mild losses to around 0.5610 during the early Asian session on Thursday. The expectation of a slower rate cut by the Federal Reserve (Fed) continues to underpin the US Dollar (USD) broadly.
Minutes released on Wednesday showed that Fed policymakers expressed concern about inflation and the impact that President-elect Donald Trump’s policies could have. Fed officials indicated they would be moving more slowly on rate reductions because of the uncertainty.
Fed officials pencilled the expected cuts in 2025 to two from four in the previous estimate at September’s meeting. A more hawkish stance of the US central bank and the signal that it would slow the pace of rate cuts in 2025 provide some support to the Greenback and act as the headwind for NZD/USD.
Investors await the Chinese December Consumer Price Index (CPI) inflation data, which is due later on Thursday. Several Fed officials are scheduled to speak later in the day. On Friday, the US Nonfarm Payrolls (NFP) for December will be in the spotlight.
On Tuesday, the National Development and Reform Commission (NDRC), China's top economic planner, issued a guideline for building a unified national market, breaking down market barriers to boost domestic demand while enhancing openness. The fresh supportive measures from China could boost the Kiwi, as China is a major trading partner for New Zealand.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.