NZD/USD continued its decline for a second consecutive day, trading around 0.5640 in Thursday’s Asian session. The pair remains under pressure following the release of New Zealand’s (NZ) inflation expectations, with the latest Reserve Bank of New Zealand (RBNZ) monetary conditions survey offering a mixed outlook for the first quarter of 2025.
Two-year inflation expectations in New Zealand fell to 2.06% in Q1 from 2.12% in the previous quarter, reflecting expectations of lower inflation over the medium term. However, one-year inflation expectations edged higher, rising to 2.15% from 2.05% in the last quarter, indicating a slight near-term inflationary pressure.
The New Zealand Dollar (NZD) remains under pressure amid growing speculation of additional rate cuts by the RBNZ. The central bank is scheduled to hold its first monetary policy meeting of the year next week, after implementing three rate cuts in 2024, which lowered borrowing costs to 4.25% in response to mild inflation.
Meanwhile, in the United States, stronger-than-expected inflation data continues to weigh on market sentiment. The US Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose 3.0% year-over-year in January, surpassing the expected 2.9%. Core CPI, which excludes volatile food and energy prices, increased to 3.3%, exceeding the forecast of 3.1%. On a monthly basis, headline inflation climbed 0.5% from December, while core CPI rose by 0.4%.
This stronger US inflation data has prompted traders to reassess their expectations for the Federal Reserve’s policy stance. According to the CME FedWatch Tool, the probability of a Fed rate cut in June has fallen to nearly 30% after the release of the January CPI data.
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