NZD/USD price maintains position above 0.5600 as softer U.S. inflation fuels rate cut speculation
NZD/USD holds above 0.5600 amid US inflation data and global trade optimism
The NZD/USD pair stayed firm above the 0.5600 level during Thursday’s Asian session, marking its fourth straight day of gains. Softer-than-expected US Consumer Price Index (CPI) data for December fueled speculation that the Federal Reserve might cut interest rates twice this year.
Headline CPI rose by 2.9% year-over-year, aligning with expectations but reflecting a cooler inflation trajectory compared to the prior month. Core CPI, excluding food and energy, rose 3.2%, slightly below the forecast of 3.3%.
The weaker inflation data exerted pressure on the US dollar Index (DXY), which hovers near 109.00. US Treasury yields also softened, with the 2-year and 10-year yields declining to 4.27% and 4.66%, respectively, amid heightened expectations of further monetary easing by the Fed.
NZD/USD price dynamics (Nov 2024 - Jan 2025) Source: TradingView.
Market sentiment and global factors support NZD
Risk sentiment favored the New Zealand dollar (NZD), buoyed by reports of President-elect Donald Trump’s economic team considering a gradual approach to import tariff hikes. This eased global trade concerns, boosting investor confidence and lending support to the risk-sensitive Kiwi.
Additionally, robust trade data from China, a key trading partner, bolstered NZD’s performance. Beijing’s measures to stabilize the Yuan further improved market sentiment. However, the upside for the NZD remains limited, as markets anticipate the Reserve Bank of New Zealand (RBNZ) will lower its cash rate from 4.25% by 50 basis points in February due to persistent domestic economic challenges.
Outlook: Eyes on US monetary policy and RBNZ decisions
The NZD/USD pair’s trajectory will depend on the Federal Reserve’s upcoming policy decisions and further clarity on US inflation trends. Should the Fed signal a continued dovish stance, the Kiwi may extend its gains. Conversely, if RBNZ rate cuts exceed expectations, the pair could face renewed downside pressure.
In our previous analysis, we discussed the mixed sentiment surrounding NZD/USD as inflation data and global trade dynamics shaped its trajectory. The pair’s direction continues to hinge on these interconnected factors.
