NZD/USD holds positive ground, China CPI falls in May
- NZD/USD gathers strength to around 0.6035 in Monday’s Asian session, up 0.50% on the day.
- China’s CPI inflation fell for a fourth consecutive month in May.
- Chinese officials are expected to meet with the US trade negotiation team in London later on Monday for renewed trade talks.
The NZD/USD pair attracts some buyers to around 0.6035 during the Asian trading hours on Monday. The New Zealand Dollar (NZD) strengthens against the Greenback after the Chinese inflation data. Traders will closely monitor trade talks between the US and China later on Monday.
Data released by the National Bureau of Statistics of China on Monday showed that the country’s Consumer Price Index (CPI) declined 0.1% YoY in May, compared to -0.1% seen in April. This figure came in above the market expectation of -0.2%.
On a monthly basis, Chinese CPI inflation eased to a decline of 0.2% in May versus April’s 0.1% rise Additionally, China’s Producer Price Index (PPI) fell 3.3% YoY in May, following a 2.7% decline in April. The data came in below the market consensus of 3.2%.
The Kiwi remains strong in an immediate reaction following the mixed Chinese economic data. The attention will shift to the US-China trade talks. US President Donald Trump stated on Friday that US Treasury Secretary Scott Bessent and two other Trump administration officials are scheduled to talk with Chinese officials in London on Monday. The hope of potential trade negotiations between the world’s two largest economies provides some support to the China-proxy Kiwi, as China is a major trading partner of New Zealand.
On the other hand, the renewed US Dollar demand due to stronger-than-expected US economic data, including the May jobs data, could lift the USD and act as a headwind for the pair. The US Nonfarm Payrolls (NFP) climbed by 139,000 in May, compared to the 147,000 increase. This reading came in above the market consensus of 130,000. Federal Fund Futures pointed to a larger chance that the US Federal Reserve (Fed) may keep its benchmark interest rate steady until the September monetary policy meetings.
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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