NZD/USD price under pressure around $0.5650 as Business NZ PSI reports decline
NZD/USD under pressure at 0.5650 as tariff concerns and weak PSI weigh on the Kiwi
The NZD/USD pair trades near 0.5650 during early Tuesday’s European session, marking a 0.53% intraday drop. Volatility surged as U.S. President Donald Trump hinted at imposing 25% tariffs on imports from Canada and Mexico starting in February.
Trump’s remarks about tariffs, including threats of up to 60% on China, have weighed heavily on currencies tied to global trade, including the New Zealand dollar (NZD).
The U.S. dollar recovered from a two-week low, with the U.S. dollar index (DXY) climbing above 108.50, driven by expectations that Trump’s protectionist policies could reignite inflationary pressures. Such a scenario might deter the Federal Reserve from executing more than one additional rate cut this year, adding to the Greenback’s strength.
NZD/USD price dynamics (Dec 2024 - Jan 2025) Source: TradingView.
Weak New Zealand PSI adds to NZD losses
Adding to the bearish sentiment, data from Business NZ revealed that New Zealand’s Performance of Services Index (PSI) fell to 47.9 in December from 49.5 in November, marking ten consecutive months of contraction.
The weaker-than-expected PSI underscores persistent economic challenges, raising concerns about New Zealand’s economic recovery and increasing market bets that the Reserve Bank of New Zealand (RBNZ) may cut its cash rate from 4.25% to 3.75% next month.
Key events to watch
Investors are now closely monitoring the upcoming Consumer Price Index (CPI) data for New Zealand, with expectations of an annual inflation rate decline to its lowest since 2021. Additionally, any developments in U.S. trade policies, particularly Trump’s tariff measures, are expected to significantly impact the Kiwi given New Zealand’s strong trade ties with China.
In conclusion, the NZD/USD pair remains under pressure as weak domestic data and tariff-related risks weigh on market sentiment. Key economic data and trade developments in the coming days will play a pivotal role in shaping the pair’s trajectory.
Our earlier analysis highlighted the role of the People’s Bank of China (PBoC) holding rates steady at 3.35% and 3.85% in supporting the NZD/USD. Additionally, dovish expectations from the Federal Reserve and robust trade ties between New Zealand and China have been key factors influencing the pair's performance.
