NZD/USD trades with mild gains near 0.5600 as traders await US CPI data
- NZD/USD trades with mild gains around 0.5600 in Wednesday’s Asian session.
- US PPI came in softer than expected last month.
- Expectations that Trump will impose graduated tariffs increasing by about 2% to 5% a month might help limit the pair’s losses.
The NZD/USD pair posts modest gains to near 0.5600 on Wednesday during the Asian trading hours. The cooler-than-expected US December Producer Price Index (PPI) inflation data drags the US Dollar (USD) lower and creates a tailwind for the pair.
The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, weakens to around 109.20 after the PPI report. Data released by the US Bureau of Labor Statistics on Tuesday showed that the PPI rose by 3.3% YoY in December, compared to 3.0% in November. This reading came in softer than the market expectation of 3.4%. Meanwhile, the core PPI, excluding the volatile prices of food and energy, climbed 3.5% in December versus 3.4% prior, below the market consensus of 3.8%.
Traders will shift their attention to the US December Consumer Price Index (CPI) inflation report, which is due later on Wednesday. A surprise upside in inflation could trigger the US Federal Reserve's (Fed) hawkish bets, supporting the Greenback and US Treasury yields. The potential US tariffs by Donald Trump and the new administration remained in the spotlight.
On the Kiwi front, reports published by Bloomberg suggested Trump might take a more strategic approach to imposing trade tariffs, which might bring some relief to the New Zealand Dollar (NZD). "Currency markets are breathing a sigh of relief after a report suggested that the incoming Trump administration could follow a 'gradual' trajectory in ratcheting tariffs higher," said Karl Schamotta, a foreign exchange analyst at Corpay.
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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