NZD Struggles on Weak China Data and Rising Fed Odds

Key Moments

NZD/USD Under Pressure in Asian Trading

NZD/USD extended its decline for a second consecutive session, trading around 0.5760 during Asian hours on Tuesday. The New Zealand Dollar remained on the back foot after the release of key Chinese economic figures, significant for New Zealand given the close trade relationship between the two economies.

China’s Activity Data Sends Mixed Signals

China’s latest batch of indicators showed softer consumer demand but firmer industrial output. Retail Sales in August rose 0.4% year-over-year, missing expectations for a 0.8% increase and slowing from July’s 0.6% gain. Industrial Production, however, expanded 5.2% YoY in August, beating the 4.8% forecast and accelerating from 4.5% previously.

Fixed Asset Investment for the year-to-date period through August fell 7.2% YoY, matching market expectations of a 7.2% decline and worsening from the 6.7% drop registered in July.

Fed Hike Expectations Bolster the US Dollar

Beyond the China data, NZD/USD also weakened as the US Dollar drew support from a sharp repricing of Federal Reserve policy expectations. Rising energy prices have intensified inflation concerns, increasing pressure on the Fed to maintain or accelerate monetary tightening.

Money markets on Monday shifted to imply more than a 92% probability of a Fed rate hike this week, a notable jump from about 60% just one week earlier, according to the CME FedWatch tool. This repricing followed Friday’s US economic releases, which showed that the Consumer Price Index rose in August, with core CPI posting its largest increase in four months.

At the same time, the US 10-year Treasury yield moved toward 5% amid broader concerns over inflation and fiscal dynamics. The advance in yields weighed heavily on non-yielding assets, including metals such as Silver.

Details on China’s Retail Sales Release

The Retail Sales figures are published monthly by the National Bureau of Statistics of China and track the value of goods sold by retailers. The data is closely watched as a gauge of consumer spending strength. The year-over-year percentage change compares the reference month to the same month in the prior year, with higher readings typically viewed as positive for the Renminbi (CNY) and lower readings seen as negative.