# What is Driving the AUD and NZD? The Impact of US Inflation and RBNZ Policy
*Adapted from the EBC article, “US Inflation and RBNZ Cut: What is Driving AUD and NZD Now?”*
The Australian dollar (AUD) and New Zealand dollar (NZD) are among the most closely watched currencies in the Asia-Pacific, especially given their sensitivity to global macroeconomic trends as well as domestic policy changes. As of mid-2024, both currencies are navigating a dynamic landscape shaped by recent developments in US inflation data, the policy direction of the Reserve Bank of New Zealand (RBNZ), and shifting expectations about the timing of US Federal Reserve rate cuts. In this analysis, we explore the factors driving the AUD and NZD, expand on insights provided by the original EBC article, and integrate views from additional market research.
## Key Macroeconomic Forces Affecting the AUD and NZD
The performance of the Australian and New Zealand dollars is influenced by several interrelated themes:
– **US monetary policy expectations and inflation trends**
– **Central bank policy stances in Australia (RBA) and New Zealand (RBNZ)**
– **China’s economic trajectory and commodity prices**
– **Global risk sentiment and appetite for riskier assets**
– **Relative interest rate differentials**
Each of these factors has seen notable developments in 2024, shaping the outlook for both the AUD and NZD.
## US Inflation and Fed Policy: The Global Anchor
The biggest international anchor for the AUD and NZD is the US dollar, whose value is heavily impacted by Federal Reserve policy. The financial markets’ view on the trajectory of Fed rate cuts is primarily shaped by US inflation data.
### Recent US Inflation Developments
– The US Consumer Price Index (CPI) readings for the first half of 2024 have shown that while inflation continues to moderate, progress is slow and uneven.
– The Federal Reserve maintained a cautious approach in its June 2024 meeting, resisting calls for immediate rate cuts and emphasizing a data-dependent stance.
– Recent inflation prints have come in slightly below expectations, prompting markets to increase bets for a first rate cut as soon as September 2024.
– Fed policymakers such as Jerome Powell and his colleagues have signaled only gradual easing, making clear that the risks of sticky inflation remain considerable.
### Effect on AUD and NZD
– Both the AUD and NZD benefit from a weaker USD, which typically results from expectations of lower US interest rates.
– Softer US inflation data in recent weeks have spurred risk appetite, causing investors to rotate out of the US dollar and into higher-yielding currencies, including the AUD and NZD.
– With the US dollar’s appreciation stalling, antipodean currencies have found some near-term support, although their rallies are capped by domestic and regional developments.
## Reserve Bank of New Zealand (RBNZ): Signaling Caution, Ending Tightening
Read more on AUD/USD trading.