NZD/USD holds losses around 0.5950 following PBoC decision, New Zealand’s CPI data

NZD/USD struggles after the release of disappointing inflation data on Monday.
New Zealand’s Consumer Price Index climbed 2.7% YoY in Q2, against the expected rise of 2.8%.
The People’s Bank of China decided to leave its one-year Loan Prime Rate unchanged at 3% in July.

Akhtar Faruqui FXStreet

NZD/USD lost ground following the disappointing New Zealand inflation data for the second quarter, trading around 0.5940 during the Asian hours on Monday. Traders may adopt caution ahead of the New Zealand Trade Balance data, due on Tuesday. The pair remains subdued after the People’s Bank of China (PBoC) decided to leave its one- and five-year Loan Prime Rates (LPRs) unchanged at 3.00% and 3.50%, respectively. It is important to note that China and New Zealand are close trade partners.

The softer-than-expected New Zealand inflation data has raised hopes that the Reserve Bank of New Zealand (RBNZ) will hold the official cash rate at 3.25% in the August meeting. Consumer Price Index (CPI) rose 2.7% year-over-year in the second quarter, compared with the 2.5% increase seen in the first quarter. The market expected a 2.8% rise in the reported period. The quarterly CPI eased by 0.5% in Q2, against the previous 0.9% and below the market consensus of 0.6%.

Moreover, the New Zealand Dollar (NZD) also faces challenges amid prevailing trade tensions between the United States (US) and China, given that China is a major trading partner of New Zealand. August 12 will be the deadline for China to finalize a long-term tariff agreement with the US, after a preliminary deal last month to end increasing tariffs.

China’s Commerce Minister Wang Wentao stated on Friday that China wants to stabilize the trade relationship with the US. Wentao also added that recent talks in Europe showed there was no need for a tariff war while urging the US to act in a manner befitting of a superpower.

However, the NZD/USD pair gained ground as the US Dollar (USD) struggled following dovish comments from a US Federal Reserve (Fed) official. Fed Governor Christopher Waller noted last week that the labor market is doing fine overall but less so in the private sector. The Fed should reduce its interest rate target at the July meeting, citing mounting economic risks, Waller added.

Economic Indicator

PBoC Interest Rate Decision

The People’s Bank of China’s (PBoC) Monetary Policy Committee (MPC) holds scheduled meetings on a quarterly basis. However, China’s benchmark interest rate – the loan prime rate (LPR), a pricing reference for bank lending – is fixed every month. If the PBoC forecasts high inflation (hawkish) it raises interest rates, which is bullish for the Renminbi (CNY). Likewise, if the PBoC sees inflation in the Chinese economy falling (dovish) and cuts or keeps interest rates unchanged, it is bearish for CNY. Still, China’s currency doesn’t have a floating exchange rate determined by markets and its value against the US Dollar is fixed mainly by the PBoC on a daily basis.

EUR/USD remains offered below 1.1600, seems vulnerable near multi-month low

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GBP/USD slips below key averages as geopolitical risks mount

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Gold moves closer to $5,150 amid sustained safe-haven flows

Gold climbs back above $5,100 during the Asian session on Wednesday, moving away from an over one-week low, touched the previous day. Sustained safe-haven flow, amid escalating geopolitical tensions in the Middle East, acts as a tailwind for the bullion. However, a bullish US Dollar and reduced bets for more aggressive easing by the US Fed might keep a lid on the non-yielding yellow metal ahead of the US ADP report and ISM Services PMI later today.