NZD/USD weakens below 0.5650 as China’s CPI falls in March
- NZD/USD edges lower to around 0.5630 in Thursday’s early Asian session, losing 0.22% on the day.
- China’s CPI inflation came in at -0.1% YoY in March vs. 0.1% expected.
- China’s tariff rate will jump to 125%, effective immediately, the White House said.
The NZD/USD pair softens to near 0.5630 during the early Asian section on Thursday. The New Zealand Dollar (NZD) remains weak against the Greenback after the release of China’s Consumer Price Index (CPI) report. Later on Thursday, the attention will shift to the US March CPI inflation data.
Data released by the National Bureau of Statistics of China showed that the country’s CPI declined 0.1% YoY in March, compared to a fall of 0.7% in February. Markets estimated a 0.1% growth in the reported period. On a monthly basis, the CPI decreased 0.4% versus -0.2% prior, worse than the expected -0.2% figure.
Meanwhile, the Producer Price Index (PPI) fell by 2.5% YoY in March, compared to the previous reading of a 2.2% decline. This reading was weaker than the estimation of -2.3%. The Kiwi posts modest losses in an immediate reaction to the Chinese economic data.
The Reserve Bank of New Zealand (RBNZ) cut its benchmark interest rate by 25 basis points (bps) at its April meeting on Wednesday, as widely expected. Analysts anticipate the RBNZ to deliver a deeper 50 bps cut, with markets factoring in the possibility of up to 100 bps in further easing by 2025.
US President Donald Trump on Wednesday was implementing a 90-day pause on reciprocal tariffs above a 10% baseline on imported goods from trading partners other than China. Trump raised the tariffs imposed on imports from China to 125% “effective immediately” due to the “lack of respect that China has shown to the world’s markets.” This, in turn, exerts some selling pressure on 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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