NZD/USD holds positive ground above 0.5700 as China unveils action plan to stabilize foreign investment
- NZD/USD drifts higher to near 0.5735 in Tuesday’s early European session.
- China’s stimulus plans and stronger New Zealand’s Retail Sales support the Kiwi.
- Trump’s tariff threats might cap the upside for the pair.
The NZD/USD pair trades in positive territory around 0.5735 during the early European session on Tuesday. The New Zealand Dollar (NZD) strengthens after China’s latest action plan showed it’s trying to boost foreign investment.
Last week, Chinese authorities published an action plan to make it easier for foreign capital to invest in domestic telecommunication and biotechnology industries. The Commerce Ministry emphasized that the action plan would be implemented by the end of 2025 and that details on subsequent supportive measures would come soon. The positive developments surrounding China’s stimulus plans underpin the China-proxy Kiwi as China is a major trading partner to New Zealand.
The stronger-than-expected New Zealand’s Retail Sales might lift the Kiwi. The country’s Retail Sales, a measure of the country’s consumer spending, rose 0.9% QoQ in the fourth quarter (Q4), the strongest gain in three years, compared to the previous reading of 0% (revised from -0.1%), according to Statistics New Zealand on Monday. This reading came in stronger than the 0.6% expected.
On the other hand, the uncertainty and concerns over US President Donald Trump's tariff plans might boost the safe-have flows, benefitting the Greenback. US President Donald Trump said tariffs on Mexico and Canada would proceed as planned.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.