- The New Zealand dollar strengthened against the US dollar after December Consumer Price Index (CPI) data in the US raised expectations that the Fed could implement two interest rate cuts this year.
- Core CPI in the US rose 3.2% annually in December, slightly below expectations of 3.3%.
- The New Zealand dollar strengthened on improved economic confidence following reports that the new Trump administration is considering gradually increasing tariffs.
NZD/USD managed to stay above 0.5600 on Asian stock exchanges on Thursday after a three-day rally. The US dollar (USD) extended losses after weaker-than-expected US Consumer Price Index (CPI) data for December raised expectations that the US Federal Reserve (Fed) could cut interest rates twice this year.
According to market expectations, inflation in the US rose by 2.9% annually in December, above 2.7% in November. Looking at monthly data, CPI increased by 0.4% and 0.3% in the quarter.
Excluding food and energy costs, US core CPI rose 3.2% in December from a year earlier, slightly lower than November MONTH data and analysts’ estimate of 3.3%. On a monthly basis, core CPI rose slightly by 0.2% in December 2024.
The US Dollar Index (DXY), which measures the greenback’s performance against a basket of six major currencies, is currently trading at 109.00. Meanwhile, yields on 2-year and 10-year US Treasury notes are at 4.27% and 4.66%, respectively. Both indexes fell more than 2% on Wednesday as the US Consumer Price Index (CPI) data raised hopes that the Fed’s easing cycle could continue.
Risk appetite for the New Zealand dollar (NZD) strengthened after Bloomberg reported that US President Donald Trump’s trade team has decided to gradually increase import tariffs.
The New Zealand dollar was also supported by strong economic data from China and Beijing’s steps to stabilise its yuan, but progress will be limited as the market expects the Reserve Bank of New Zealand (RBNZ) to cut its 4.25% cash rate by 50 basis points in February to reflect the country’s economic weakness.