- NZD/USD strengthened as US CPI data for December fueled speculation that the Fed could implement two interest rate cuts this year.
- The US core CPI rose 3.2% year-on-year in December, slightly below the expected 3.3% increase.
- The New Zealand dollar strengthened on improving market sentiment following reports that the incoming Trump administration is considering gradual tariff increases.
NZD/USD remains above 0.5600 during Asian hours on Thursday after three consecutive days of gains. The pair received gains as the US Dollar (USD) extended its decline following lower-than-expected US Consumer Price Index (CPI) inflation data for December, increasing bets that The US Federal Reserve (Fed) could cut interest rates twice this year.
The US Consumer Price Index rose 2.9% year-on-year in December, up from 2.7% in November, aligning with market expectations. In monthly terms, the CPI rose 0.4%, after an increase of 0.3% in the previous month.
The US core CPI, which excludes food and energy price volatility, rose 3.2% annually in December, slightly below the November figure and analysts’ forecast of 3.3%. On a monthly basis, the core CPI rose 0.2% in December 2024.
The US Dollar Index (DXY), which measures the performance of the US dollar against six major currencies, is trading near 109.00. Meanwhile, the 2-year and 10-year US Treasury bond yields are at 4.27% and 4.66%, respectively. Both yields fell more than 2% on Wednesday as softer US core CPI data fueled expectations that the Federal Reserve’s easing cycle could continue.
The risk-sensitive New Zealand Dollar (NZD) strengthened on improving market sentiment following Bloomberg reports suggesting US President-elect Donald Trump’s economic team is considering a gradual approach to increasing import tariffs, increasing investor confidence.
The NZD also found support in strong Chinese trade data and Beijing’s moves to stabilize the Yuan. However, its gains could be limited as markets expect the Reserve Bank of New Zealand (RBNZ) to cut its 4.25% cash rate by 50 basis points in February, reflecting the country’s weak economic conditions.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known currency among investors. Its value is largely determined by the health of the New Zealand economy and the policy of the country’s central bank. However, there are some peculiarities that can also cause the NZD to move. The evolution of the Chinese economy tends to move the Kiwi because China is New Zealand’s largest trading partner. The bad news for the Chinese economy will likely mean fewer New Zealand exports to the country, which will affect the economy and therefore its currency. Another factor moving the NZD is dairy product prices, as the dairy industry is New Zealand’s main export. High dairy prices boost export earnings, contributing positively to the economy and therefore the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate of between 1% and 3% over the medium term, with the aim of keeping it close to the midpoint of 2%. To do this, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ raises interest rates to cool the economy, but the move will also drive up bond yields, making investors more attractive to invest in the country and thus boosting the NZD. On the contrary, lower interest rates tend to weaken the NZD. The so-called rate differential, or what rates in New Zealand are or are expected to be compared to those set by the US Federal Reserve, can also play a key role in the movement of the NZD/USD pair.
The release of macroeconomic data in New Zealand is key to assessing the state of the economy and can influence the valuation of the New Zealand Dollar (NZD). A strong economy, based on high economic growth, low unemployment and high confidence is good for the NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to raise interest rates if this economic strength is accompanied by high inflation. Conversely, if economic data is weak, the NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during periods of risk appetite, or when investors perceive overall market risks to be low and are optimistic about growth. This usually translates into a more favorable outlook for commodities and so-called “commodity currencies” such as the kiwi. Conversely, the NZD tends to weaken during times of market turmoil or economic uncertainty, as investors tend to sell riskier assets and flee to more stable havens.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
