The NZD/USD pair has bounced back after recently hitting a seven-month low of about 0.5600. The rise in Chinese inflation in October has strengthened the New Zealand Dollar, along with a US budget deal that reduces worries about a government shutdown. Right now, NZD/USD is up 0.15%, trading around 0.5640. The seven-month low of 0.5605 has been reversed by a 0.2% year-on-year increase in China’s Consumer Price Index (CPI), following a previous decline. Additionally, the Producer Price Index fell only 2.1%, less than expected, suggesting a slow improvement in domestic demand.

Trade Prospects

Beijing’s temporary lifting of its ban on exporting strategic metals to the US, lasting until November 2026, boosts trade prospects between the two countries. The US Dollar remains steady after the Senate approved a measure to fund federal agencies until the end of January. San Francisco Federal Reserve President Mary Daly’s remarks, which support current policies aimed at bolstering the economy while remaining vigilant against inflation, have kept the US Dollar stable. The recovery of NZD/USD hinges on China’s economic health and global risk sentiment. Any changes in Asia’s growth outlook or enhancements in the US Dollar may limit the New Zealand Dollar’s gains. The New Zealand Dollar performed best against the Japanese Yen. Current changes against major currencies show mixed results, with the New Zealand Dollar dropping by -0.31% against the Australian Dollar and -0.02% against the US Dollar. The bounce from the 0.5600 seven-month low is a key short-term development for NZD/USD. This rebound directly results from the unexpected rise in China’s October inflation to 0.2% after a period of decline. Traders should see the 0.5600 level as important technical support for any further gains. While the rise in Chinese consumer prices is encouraging, we must remember the earlier struggles with deflation seen in late 2023 and early 2024. To fully trust this recovery of the Kiwi, we need confirmation from upcoming figures on Chinese industrial production and retail sales. Just one CPI report isn’t enough to ease worries about the fragile property market, where new home prices have been falling for over a year.

Market Focus

The stability of the US Dollar is likely temporary, as the budget deal only postpones the government funding deadline to January 2026, setting up the potential for more conflict. The market is now focused on when the Federal Reserve will cut rates, especially since inflation has significantly cooled from its highs. Next week’s US Consumer Price Index data will be crucial, with expectations around 2.5%, an important level for the Fed. Given the mix of positive trends and underlying risks, using options may be a smart strategy in the next few weeks. Traders who are optimistic about a continued recovery might think about buying call options on NZD/USD to minimize risk if the situation in China worsens. Implied volatility may rise around the US CPI release and as the January budget deadline approaches, offering opportunities for those trading on volatility. Create your live VT Markets account and start trading now.

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