NZD/USD maintains position above 0.5600 due to increased odds of Fed rate cuts

• NZD/USD strengthened as December's US CPI data fueled speculation that the Fed might implement two interest rate cuts this year.
• US Core CPI increased 3.2% YoY in December, slightly below the expected 3.3% rise.
• The New Zealand Dollar strengthened on improved market sentiment following reports of the incoming Trump administration considering gradual tariff hikes.

NZD/USD remains above 0.5600 during the Asian hours on Thursday following three successive days of gains. The pair received gains as the US Dollar (USD) extended its downside following the cooler-than-expected US Consumer Price Index (CPI) inflation data for December raises the bet that the US Federal Reserve (Fed) could cut interest rates twice this year.

The US Consumer Price Index increased by 2.9% year-over-year in December, up from 2.7% in November, aligning with market expectations. On a monthly basis, CPI rose 0.4%, following a 0.3% increase in the previous month.

US Core CPI, which excludes volatile food and energy prices, rose 3.2% annually in December, slightly below November's figure and analysts' forecast of 3.3%. On a monthly basis, core CPI edged up 0.2% in December 2024.

The US Dollar Index (DXY), which gauges the US Dollar's performance against six major currencies, is trading near 109.00. Meanwhile, 2-year and 10-year US Treasury bond yields are at 4.27% and 4.66%, respectively. Both yields dropped by over 2% on Wednesday as softer US core CPI data fueled expectations that the Federal Reserve's easing cycle may continue.

The risk-sensitive New Zealand Dollar (NZD) strengthened on improved market sentiment following reports from Bloomberg suggesting that US President-elect Donald Trump's economic team is considering a gradual approach to raising import tariffs, boosting investor confidence.

The NZD also found support from strong trade data out of China and Beijing's measures to stabilize the Yuan. However, its gains may be capped as markets expect the Reserve Bank of New Zealand (RBNZ) to cut its 4.25% cash rate by 50 basis points in February, reflecting the country's weak economic conditions.