NZD/USD price weakens as U.S.-China trade tensions escalate
NZD/USD struggles near $0.564 as tariffs and rate cut fears investors
The New Zealand dollar (NZD) remains under pressure, trading near $0.564 on Monday after US President Donald Trump announced a 25% tariff on all steel and aluminum imports. The move has intensified US-China trade tensions, with Beijing's retaliatory tariffs on US goods coming into effect the same day.
Investor sentiment has shifted towards safe-haven assets, strengthening the US dollar (USD) and dragging NZD/USD to a four-day low.
China’s latest consumer inflation data, released over the weekend, showed a 0.7% month-on-month rise in January, its fastest in 11 months, but this failed to boost market confidence. Factory-gate prices continued their downward trend, highlighting ongoing deflationary concerns in the industrial sector, which could further impact China-proxy currencies like the Kiwi.
NZD/USD price dynamics (December 2024 - February 2025) Source: TradingView.
Diverging Fed and RBNZ policies add to downside risks
The Federal Reserve (Fed) remains cautious about rate cuts, supported by better-than-expected US employment data. January’s Nonfarm Payrolls (NFP) report showed the economy added 143,000 jobs, while the unemployment rate dipped to 4.0%, reinforcing expectations that the Fed may keep interest rates higher for longer. Markets now expect the Fed to cut rates by just 36 basis points in 2025, a less dovish stance than previously anticipated.
Meanwhile, the Reserve Bank of New Zealand (RBNZ) is widely expected to implement another 50 basis point rate cut at its upcoming meeting, following two consecutive supersized cuts. The weaker economic outlook in New Zealand, coupled with ongoing trade uncertainties, suggests that the Kiwi dollar may continue to struggle in the near term.
Market outlook: NZD/USD remains vulnerable
With trade war concerns escalating and diverging monetary policy stances between the Federal Reserve and the RBNZ, the NZD/USD pair remains bearish. Market participants will closely watch Fed Chair Jerome Powell’s testimony this week for further cues on US monetary policy, while expectations for a third RBNZ rate cut could keep downside pressure on the Kiwi.
On the basis of previously analyzed charts, NZD/USD remains in a downtrend, struggling below key resistance levels. A sustained move below $0.56 could trigger further losses, while any recovery attempt may face selling pressure.
