The New Zealand Dollar (NZD) experienced a notable increase against the US Dollar (USD) as market sentiment shifted following the release of the US Consumer Price Index (CPI) data for December. This data sparked speculation that the Federal Reserve may enact two interest rate cuts later in the year. The Core CPI rose by 3.2% year-over-year in December, slightly under the anticipated 3.3% increase. These figures contributed to a broader understanding of the Fed’s potential monetary policy direction.
During the Asian trading hours on Thursday, the NZD/USD pair maintained a position above 0.5600, buoyed by three consecutive days of gains. The US Dollar’s recent decline was attributed to the cooler-than-expected inflation data, which further elevated expectations of interest rate reductions by the Federal Reserve. December saw a year-over-year CPI increase of 2.9%, up from 2.7% in November, consistent with market forecasts. Monthly CPI figures showed a 0.4% rise, following a 0.3% increase the previous month.
Additionally, the US Dollar Index (DXY), which measures the USD against a basket of six major currencies, hovered around 109.00. Yields on 2-year and 10-year US Treasury bonds were reported at 4.27% and 4.66%, respectively, both seeing declines of over 2% amidst soft core inflation data, further fueling the narrative of an ongoing easing cycle from the Federal Reserve.
Investor sentiment towards the New Zealand Dollar improved as reports indicated that the incoming US administration was contemplating a gradual approach to import tariffs. This potential development, along with robust trade data from China and efforts by Beijing to stabilize its currency, provided additional support for the NZD. Nevertheless, any further appreciation of the New Zealand Dollar may be limited as expectations mount for the Reserve Bank of New Zealand to cut its cash rate by 50 basis points in February, a reflection of the country’s challenging economic landscape.
