The New Zealand Dollar (NZD) lost momentum on Friday, slipping toward 0.5870 against the US Dollar (USD) in the Asian session. The move comes amid renewed US Dollar demand and soft inflation data from China, which highlighted persistent deflationary risks in the world’s second-largest economy.
China’s CPI Reignites Deflation Concerns
China’s Consumer Price Index (CPI) dropped 0.4% year-on-year in August, a sharper decline than the 0.2% fall expected, according to data from the National Bureau of Statistics. The return of negative inflation highlights weak domestic demand and oversupply in industrial sectors.
Since China is New Zealand’s largest trading partner, weaker Chinese prices often act as a bearish signal for the Kiwi, reflecting concerns about export demand and overall economic momentum.
Fed Rate Cuts Still in Focus
On the US front, inflation data for August showed prices rising more than expected, though not alarmingly enough to derail expectations for Federal Reserve easing. Markets are now convinced the Fed will cut interest rates at its September meeting, with some speculation around the size of the move.
Eugene Epstein, head of trading and structured products at Moneycorp, commented:
“The CPI didn’t come in as high as the market expected. The concern is whether dovish bets based on weak jobs data could be unwound if inflation accelerates further.”
This dynamic has created a push-pull effect on the NZD/USD pair — with the Greenback finding short-term support, while rate cut bets limit deeper gains.
Market Outlook
Traders will closely watch the University of Michigan Consumer Sentiment Index later today for fresh signals on US consumer confidence and inflation expectations. A weaker reading could reinforce the case for aggressive Fed easing, potentially helping NZD/USD stabilize above 0.5900.
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