NZD/USD holds below 0.5800 as traders brace for US CPI release
- NZD/USD trades with a negative bias near 0.5795 in Wednesday’s early Asian session.
- The US CPI inflation report will be the highlight on Wednesday.
- The disappointing Chinese trade figures weigh on the Kiwi.
The NZD/USD pair trades on a softer note around 0.5795 during the Asian session on Wednesday. However, the upside of the pair seems limited amid weak Chinese trade data and the potential fresh tariffs from US President-elect Donald Trump. Traders await China’s closed-door annual economic conference and US November Consumer Price Index (CPI) data.
Investors expect the US Federal Reserve (Fed) to cut interest rates at the December 17-18 meeting. According to the CME FedWatch Tool, traders are now pricing in nearly 86% odds of a 25 basis points (bps) Fed rate reduction. The US CPI inflation data on Wednesday could offer some hints about the US interest rate outlook before the Federal Reserve's (Fed) final policy meeting of 2024. Any signs of a hotter-than-expected outcome could lift the US Dollar (USD) and act as a headwind for the pair.
"Obviously the market's kind of nervous about a stronger print, which might lead to a slightly more hawkish outlook on the Fed, or maybe a little bit of a repricing," said Brad Bechtel, global head of FX at Jefferies.
China's exports slowed sharply, and imports unexpectedly fell in November, raising concerns about the world’s second-largest economy as Donald Trump's imminent return to the White House brings the potential for fresh tariffs. The disappointing Chinese trade figures might drag the China-proxy Kiwi lower, as New Zealand is one of the leading trading partners of China.
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.