The New Zealand Dollar (NZD) is currently experiencing downward pressure, mainly due to concerns about deflation in China, New Zealand’s largest trading partner. During Monday’s Asian trading session, the NZD/USD pair traded around 0.6090, reflecting a depreciation after the currency managed slight gains in the previous two sessions. Market sentiment remains cautious as traders closely monitor China’s economic developments, particularly its potential economic stimulus plans.
Recent data from China’s National Bureau of Statistics revealed that the Consumer Price Index (CPI) remained unchanged at 0% in September, down from a 0.4% increase in August. Yearly inflation reached 0.4%, falling below expectations of 0.6%. Additionally, the Producer Price Index (PPI) showed a more significant decline of 2.8% year-on-year, exceeding forecasts of a 2.5% drop and worse than the prior figure of 1.8%. These indicators reflect a weakening economy that impacts demand for New Zealand exports.
Amid rising geopolitical tensions, safe-haven flows are further pressuring the NZD. China’s recent military drills in the Taiwan Strait have raised concerns internationally, prompting statements of alarm from US officials regarding the actions of the People’s Liberation Army.
In New Zealand, the Business NZ Performance of Services Index (PSI) indicates a slightly favorable trend, scoring 45.7 for September, which is marginally better than its prior reading of 45.5. Despite this improvement, the index still suggests a contraction in the services sector.
Finally, the US Dollar (USD) is gaining strength against the backdrop of expectations that the US Federal Reserve may take a more cautious approach to interest rate cuts than previously anticipated. Market forecasts currently show an 86.9% probability of a 25 basis point reduction in interest rates in November, with little expectation of a more substantial cut, thereby influencing dollar appreciation.
