The New Zealand Dollar (NZD) has experienced a decline, approaching the 0.5600 level against the US Dollar (USD) during the early hours of the Asian trading session on Friday. The strengthening of the USD, coupled with deflation concerns emerging from China, are significant factors contributing to this downward pressure on the NZD. A critical focus of the day will be the release of the US December employment data, which includes key metrics such as Nonfarm Payrolls (NFP), the Unemployment Rate, and Average Hourly Earnings.
This year, officials at the US Federal Reserve have adopted a more cautious approach due to ongoing inflation concerns and uncertainties linked to the newly incoming administration. This posture has been favorable for the USD, with several Fed members indicating a slower trajectory for rate cuts in 2024 following recent reductions in previous meetings.
Later today, the US Bureau of Labor Statistics is set to unveil the employment report for December. Analysts project the addition of approximately 160,000 jobs for the month, with the unemployment rate expected to hold steady at 4.2%. Additionally, a month-over-month increase of 0.3% in Average Hourly Earnings is anticipated. Positive indicators reflecting a robust labor market, consistent job creation, and rising wages could enhance the USD’s strength, further challenging the NZD/USD exchange rate.
Meanwhile, China continues to grapple with deflationary pressures, despite ongoing efforts from policymakers aimed at stimulating economic demand. Notably, the Consumer Price Index (CPI) showed a modest increase of 0.1% year-on-year in December, while the Producer Price Index (PPI) saw a decline of 2.3% year-on-year for the 27th consecutive month. As China is a key trading partner for New Zealand, these economic challenges are likely to exert additional pressure on the Kiwi.
