During Asian trading hours on Thursday, the NZD/USD pair experienced a decline of approximately 0.5980. The movement came in the wake of softer-than-expected Chinese Consumer Price Index (CPI) data for March, while the Producer Price Index (PPI) aligned with market forecasts. Although the pair showed minimal reaction following the release of Chinese inflation figures, focus is now set to shift towards the US PPI data for March, scheduled for later in the day.
Recent pivotal data from the National Bureau of Statistics of China revealed a moderation in inflation within the world’s second-largest economy. China’s Consumer Price Index (CPI) registered a year-on-year increase of 0.1% in March, compared to a 0.7% rise in February and falling short of the anticipated 0.4% uptick. Meanwhile, on a monthly basis, Chinese CPI inflation recorded a decline of -1.0% in March, as opposed to the 1.0% increase seen in the previous month, thereby falling below the estimated 0.5% decrease.
Furthermore, China’s Producer Price Index (PPI) exhibited a year-on-year decrease of 2.8% in March, slightly surpassing the 2.7% decline observed in the preceding reading and outperforming market projections for the reported period. The softening inflationary trend in China has fueled concerns over decelerating economic growth in recent months. Such subdued inflation data amplifies apprehensions regarding uncertain economic prospects, potentially constraining the upside potential of the New Zealand Dollar (NZD) against the USD, often considered a proxy for China’s economic performance.
In its latest decision on Wednesday, the Reserve Bank of New Zealand (RBNZ) opted to maintain its Official Cash Rate (OCR) at 5.5% for the sixth consecutive meeting, in line with widespread expectations. Emphasizing the maintenance of a restrictive monetary policy stance to uphold downward pressure on inflation, the RBNZ’s decision was perceived by some economists as dovish, particularly against the backdrop of New Zealand’s entry into a technical recession and a downturn in consumer confidence.
Conversely, the resilient US economy and persistent inflationary pressures may prompt the Federal Reserve (Fed) to contemplate interest rate cuts later this year, providing underlying support to the Greenback. According to the CME’s FedWatch tool, financial markets currently assign a 66% probability of an interest rate reduction at the September meeting, reflecting evolving expectations regarding future Fed policy adjustments.
