NZD/USD holds firm above 0.5900 despite soft Chinese CPI data
- NZD/USD drifts higher to around 0.5930 in Wednesday’s early Asian session.
- China’s CPI fell more than expected in August.
- US rate futures show a high chance of a Fed rate cut this month.
The NZD/USD pair gathers strength near 0.5930 during the Asian trading hours on Wednesday. The New Zealand Dollar (NZD) edges higher against the Greenback despite softer Chinese inflation data. The US Producer Price Index (PPI) inflation data for August will take center stage later on Wednesday.
Data released by the National Bureau of Statistics of China on Wednesday showed that China’s Consumer Price Index (CPI) declined 0.4% YoY in August, compared to 0% in July. This figure came in softer than the market expectation of -0.2%. Meanwhile, Chinese CPI inflation came in at 0% MoM in August versus a rise of 0.4% prior.
The Producer Price Index (PPI) decreased 2.9% YoY in August, following a 3.6% fall in July, in line with the market consensus. However, the Kiwi remains firm in an immediate reaction to the Chinese economic data. It’s worth noting that 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.
Traders ramp up their bets on the US Federal Reserve (Fed) rate cut at its September meeting after a report showing downward revisions of nearly a million fewer jobs to previous government estimates for the April 2024 to March 2025 period. This indicated a far weaker labor market than what the initial numbers showed in that 12-month period.
Financial markets are currently pricing in nearly a 92% odds of a 25 basis points (bps) Fed rate cut later this month and an 8% possibility of a 50 bps reduction, according to the CME FedWatch tool.
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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