NZD/USD price weakens below $0.57 amid U.S.-China trade tensions and Fed policy caution
NZD/USD weakens ahead of US jobs data
The New Zealand dollar struggled against the U.S. dollar on Friday, softening to 0.567 as investors exercised caution ahead of the US Nonfarm Payrolls (NFP) report. Market sentiment remains fragile amid renewed trade war tensions between the United States and China, a development that has weighed on risk-sensitive currencies such as the New Zealand dollar.
The NZD/USD pair is under selling pressure following China’s retaliatory tariffs on US imports. Earlier this week, China’s finance ministry imposed tariffs on key US goods, including crude oil, agricultural equipment, and automobiles, in response to President Donald Trump’s 10% tariff on Chinese imports. The escalating tensions have dampened risk appetite, leading to increased demand for safe-haven assets like the US dollar, while the China-proxy New Zealand dollar continues to weaken.
The uncertainty surrounding the trade war has led investors to adopt a wait-and-see approach ahead of Friday’s NFP release, which could further shape the US Federal Reserve’s monetary policy outlook. The Federal Reserve has signaled that it is in no rush to cut interest rates, citing sticky inflation concerns and economic resilience. Any signs of softening labor market data, however, could undermine the US dollar’s strength and provide some relief to NZD/USD.
NZD/USD price dynamics (December 2024 - February 2025) Source: TradingView.
Fed’s stance and RBNZ rate cut expectations
The Federal Reserve’s cautious approach has added to market uncertainty. Fed officials, including Vice Chairman Philip Jefferson and Chicago Fed President Austan Goolsbee, emphasized the need for a measured pace of rate cuts, given ongoing policy uncertainties. This stance contrasts sharply with the Reserve Bank of New Zealand’s (RBNZ) expected rate cut, which has added downside pressure on the New Zealand dollar.
Market participants are now pricing in a 92% probability that the RBNZ will cut interest rates by 50 basis points to 3.75% on February 19, marking its third consecutive rate cut. This divergence in monetary policy expectations between the Fed and RBNZ has tilted the balance in favor of the US dollar, limiting the upside potential for NZD/USD in the near term.
In previous NZD/USD technical analysis, the pair remained below key moving averages, reinforcing a bearish outlook. The 14-day Relative Strength Index (RSI) remained weak, reflecting selling pressure, while the pair failed to reclaim resistance at 0.5705.
