NZD/USD gathers strength above 0.6000 on softer US CPI data
- NZD/USD edges higher to around 0.6035 in Thursday’s early European session, bolstered by the softer US Dollar.
- Softer US inflation data undermines the US dollar and acts as a headwind for the pair.
- Trump said the trade deal with China is ‘done,’ though details from China were lacking.
The NZD/USD pair gathers strength to around 0.6035 during the early Asian session on Thursday. Cooler-than-expected US inflation data and rising bets of a Federal Reserve (Fed) rate cut in September exert some selling pressure on the Greenback. The US Producer Price Index (PPI) and weekly Initial Jobless Claims will be the highlights later on Thursday.
US inflation rose in May by less than expected for the fourth consecutive month, weighing on the US Dollar (USD). The US CPI rose 2.4% YoY in May versus 2.3% prior, the US Bureau of Labor Statistics (BLS) showed on Wednesday. This reading came in below the market expectation of 2.5%. The core CPI, which excludes volatile food and energy prices, climbed 2.8% YoY in May, compared to the consensus of 2.9%.
Cooler-than-expected US inflation in May has prompted traders to raise their bets on a Federal Reserve (Fed) rate cut. Traders of short-term interest rate futures have priced in nearly a 68% odds that the Fed would cut rates by 25 basis points (bps) by September, compared with 57% before the US CPI data. They now also see a still small but rising chance of an earlier rate cut, putting about an 18% odds of that happening in July versus about 13% earlier on Wednesday.
US President Donald Trump said that the trade deal with China is ‘done,’ although details and confirmation from China were lacking. Additionally, US Commerce Secretary Howard Lutnick stated that tariffs on China will be at the current 55% without additional increases. Positive developments surrounding US-China trade talks also underpin the China-proxy Kiwi, as China is a major trading partner of 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.
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