NZD/USD price slips below 0.5600 amid strengthening U.S. dollar
NZD/USD slips near 0.5585 as US dollar gains strength ahead of NFP data
The NZD/USD pair fell to approximately 0.5585 during early European trading on Friday, marking a 0.25% decline for the day. This downward momentum was driven by a strengthening US dollar (USD) as markets brace for the release of the US December Nonfarm Payrolls (NFP) data later in the day.
The US dollar Index (DXY) is poised for its sixth consecutive weekly gain, trading near 103.35, supported by higher bond yields and expectations of strong economic data.
NZD/USD price dynamics (Nov 2024 - Jan 2025) Source: TradingView.
Fed policies bolster U.S. dollar Demand
The Federal Reserve (Fed) has maintained a cautious approach to its monetary policy. While the Fed reduced rates by a full percentage point during the final three meetings of 2024, it is expected to keep the policy rate steady at 4.25%-4.5% in January.
Market sentiment indicates a 93.1% probability of a pause in further rate cuts, according to the CME FedWatch tool. These expectations have bolstered USD demand, contributing to the NZD/USD pair’s decline.
RBNZ dovishness and China’s deflationary concerns
Adding to the bearish sentiment for the New Zealand dollar (NZD) are dovish expectations surrounding the Reserve Bank of New Zealand (RBNZ) and economic concerns in China. China’s Consumer Price Index (CPI) data for December revealed nearly flat inflation, sparking deflationary worries. Given New Zealand’s close trade ties with China, economic weakness in the latter could further weigh on the Kiwi.
The US December Nonfarm Payrolls data, expected to show a decrease to 160,000 from November’s 227,000, will be closely monitored. The report's outcome could influence the Fed's policy trajectory and the USD’s performance. On the other hand, any signs of improvement in China’s economic data could provide temporary support for the NZD.
In our previous analysis, we discussed the role of dovish central bank bets and China’s economic pressures in shaping NZD/USD dynamics. These factors remain critical as the pair navigates significant support levels near 0.5580.
