The New Zealand Dollar (NZD) extended its losses for a second consecutive day, trading around 0.5650 during the early European hours on Wednesday. The NZD faced downward pressure following the release of New Zealand’s latest inflation figures, which pointed to a moderated price increase.
The Consumer Price Index (CPI) for Q4 2024 remained steady at 2.2% year-over-year, slightly surpassing expectations but staying within the Reserve Bank of New Zealand’s (RBNZ) target range of 1-3%. On a quarterly basis, CPI rose by 0.5%, a slight dip from the previous quarter’s 0.6% increase. These figures suggest that price pressures remained contained, bolstering expectations for another significant rate cut by the RBNZ in February. Market pricing now indicates a 90% chance of a 50 basis point reduction on February 19, with a total of 100 bps in rate cuts expected for 2025.
In addition, the NZD/USD pair remains under pressure due to a heightened risk-off sentiment. US President Donald Trump’s announcement that his administration is considering imposing a 10% tariff on Chinese imports starting February 1 has added to global economic uncertainty. Although Trump stated that the proposal for widespread tariff hikes is not yet finalized, the mere suggestion has led to increased market caution.
The US Dollar (USD) managed to hold onto modest gains as investors anticipate that Trump’s trade policies could drive inflationary pressures, potentially limiting the Federal Reserve’s ability to cut rates further. With the Fed likely to maintain its benchmark overnight rate at 4.25%-4.50% in its January meeting, the USD may recover some recent losses, putting additional pressure on the NZD.
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