New Zealand Dollar holds losses despite hotter Chinese CPI inflation data

NZD/USD softens to around 0.5865 in Monday’s early Asian session.
China’s CPI inflation rose to 1.3% YoY in February, hotter than expected
Trump said the new supreme leader will ‘not last long’ without US approval, raising fears of a prolonged Middle East war.

Lallalit Srijandorn FXStreet

The NZD/USD pair faces some selling pressure to near 0.5865 during the early Asian session on Monday. The US Dollar (USD) strengthens against the New Zealand Dollar (NZD) as the US-Israeli war with Iran shows no sign of resolution, boosting safe-haven demand.

The latest data from the National Bureau of Statistics of China on Monday showed that China’s Consumer Price Index (CPI) climbed 1.3% YoY in February, compared to an increase of 0.2% in January. This figure came in above the market consensus of 0.8%. Meanwhile, China’s Producer Price Index (PPI) declined 0.9% YoY in February, versus a 1.4% fall in January, better than the expectations of -1.1%.

On a monthly basis, the Chinese CPI inflation arrived at 1.0% MoM in February, versus a rise of 0.2% prior. However, the encouraging Chinese economic data fail to boost the China-proxy Aussie as the markets remain cautious amid escalating tensions in the Middle East.

Iran picked Mojtaba Khamenei as the country’s new supreme leader just over a week after his father, Ayatollah Ali Khamenei, was killed in US-Israeli strikes. US President Donald Trump said that he would exert influence over Iran’s next supreme leader, saying that whoever is picked for the role without Washington’s approval is “not going to last long."

New Zealand Dollar FAQs

What key factors drive the New Zealand Dollar?

The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.

How do decisions of the RBNZ impact the New Zealand Dollar?

The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.

How does economic data influence the value of the New Zealand Dollar?

Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.

How does broader risk sentiment impact the New Zealand Dollar?

The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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