New Zealand Dollar holds ground despite softer China’s CPI data

NZD/USD extends its gains for the second successive day, trading around 0.5720 during the Asian hours on Thursday. The pair holds gains as the New Zealand Dollar (NZD) remains stronger following the Consumer Price Index (CPI) inflation data release from New Zealand’s close trading partner, China.

The National Bureau of Statistics (NBS) of China reported that inflation came in at 1.0% year-over-year (YoY) in June, against the 1.2% in May. The market consensus was for 1.1% in the reported period. CPI inflation arrived at -0.3% MoM in June versus a decline of 0.1% prior, softer than the expectation of a 0.2% fall.

The NZD/USD pair appreciates as the US Dollar (USD) continues to lose ground following the release of Wednesday's Federal Reserve (Fed) Meeting Minutes. The committee remains deeply divided over the trajectory of inflation, specifically whether it will remain sticky or begin to cool as geopolitical conflict in the Middle East eases.

During Kevin Warsh’s debut meeting as FOMC Chairman on June 16-17, policymakers were split: while many participants noted the benchmark rate would likely finish the year unchanged or slightly below its current 3.6% level, an equally vocal contingent argued that rates would need to move higher by year-end.

However, renewed tensions between the US and Iran are stoking energy-driven inflation fears, which could boost safe-haven demand for the Greenback. This geopolitical friction has reinforced expectations that the Fed may lock in higher interest rates for longer to combat stubborn price pressures. According to the CME FedWatch tool, swap traders have raised the probability of a rate hike at the next Fed meeting to over 30%, a sharp jump from less than 20% just last week.

US President Donald Trump stated on Wednesday that an interim agreement to end the conflict with Iran was officially "over." The US President also threatened a second day of airstrikes and vowed to reimpose a US naval blockade in retaliation for recent attacks on oil tankers transiting the Strait of Hormuz.