NZD/USD strengthens to near 0.5950 ahead of US PPI release
- NZD/USD edges higher to around 0.5945 in Wednesday’s early European session.
- Traders raise their bets that the Fed will lower the borrowing costs at its September 16-17 policy meeting.
- China’s CPI dipped 0.4% last month from a year earlier, worse than the forecast.
The NZD/USD pair attracts some buyers near 0.5945 during the early European session on Wednesday. The prospect of a jumbo rate cut from the US Federal Reserve (Fed) undermines the US Dollar (USD) against the New Zealand Dollar (NZD). Traders brace for the US Producer Price Index (PPI) inflation data for August later on Wednesday for fresh impetus.
The greenback struggles to gain ground as mounting concerns over a cooling US labor market fuel expectations of Fed rate reductions as soon as next week. Annual revisions to Nonfarm Payrolls (NFP) data for the year prior to March 2025 showed a fall of 911,000 from the initial estimate.
Traders are increasingly anticipating stronger Fed easing. Money markets have fully priced in a 25 basis points (bps) rate cut, while the possibility of a larger 50 bps reduction has also risen to nearly 12%, according to the CME FedWatch tool.
"The bar for a 50 bp move is high, there would likely need to be a clear downside surprise in core inflation to give doves cover," said Kieran Williams, head of Asia FX at InTouch Capital Markets.
China’s Consumer Price Index (CPI) inflation fell more than expected in August, while deflation in wholesale prices persisted, which might cap the upside for the pair. The country’s CPI declined 0.4% YoY in August versus 0% prior, the National Bureau of Statistics of China reported Wednesday. This figure came in softer than the market expectation of -0.2%.
Meanwhile, China’s Producer Price Index (PPI) declined 2.9% YoY in August, following a 3.6% fall in July, in line with the market consensus. China’s CPI is often seen as a proxy for Chinese economic health. If the CPI is weak, it signals sluggish demand in the Chinese economy, weighing on the China-proxy Kiwi.
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.
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