As reflected in the NZD/USD currency pair, the New Zealand dollar is under pressure. Indeed, it is trading only a touch under the mid-0.5700s during the Friday Asian session. The duo have now been a net sell for four days in a row. It is set to lose ground for a second consecutive week. A new release of inflation data out of China seems to have flipped the market on its head. Traders have their eyes on US Nonfarm Payrolls (NFP), which will be released later today.
According to data from China’s National Bureau of Statistics (NBS), the headline Consumer Price Index (CPI) rose 0.8% year-on-year in December. This represents a 12-month growth rate for the CPI. This is up from 0.7% in November. It was less than the consensus estimates of a 0.9% growth. The year-on-year reading measures the change in December’s prices versus the same month last year. This apples-to-apples comparison provides us with a more accurate view of inflationary trends even in the world’s second-largest economy.
Unlike the CPI inflation data, Producer Price Index (PPI) showed a drop of 1.9% in the year-on-year measurement. This drop represents a positive change from the 2.2% drop reported in November. Specifically, it points to an easing of deflationary pressures across the manufacturing sector. The diverging trends between CPI and PPI speak to the complexities of the current economic landscape in China.
Market participants eagerly await all the figures coming to light. First, they’re especially all ears on comments from Reserve Bank of New Zealand (RBNZ) Governor Ann Breman. She also hinted that the Monetary Authority would probably hold its policy rate at the current level for an “extended period.” This will be possible if the economy grows as projected. This dovish looking outlook from the RBNZ would be an additional factor weighing on the NZD’s prospects against a strongly rising US dollar.
The reaction of the NZD/USD pair is likely to be a useful barometer for broader market sentiments about the US dollar. Expectations for a dovish turn from the US Federal Reserve may prevent any meaningful USD appreciation. Spot prices continued to remain low and largely flat following the release of China’s inflation numbers. This trend is a further indication that traders are adopting a flight-to-quality stance.
As investors and traders reevaluate all of their positions, they are particularly on edge awaiting the release of the US Nonfarm Payrolls figures later today. As always, this report is immensely important, as it offers the most comprehensive view into the country’s employment trends and economic health. Analysts caution traders from acting prematurely without more selling. Their starting premise is that one should look for movement below the weekly low – just under the 0.5725-0.5720 area to indicate whether further NZD/USD pair depreciation is likely.