NZD/USD sticks to gains near 0.5600 on weaker USD; bulls seem cautious amid tariff worries
- NZD/USD attracts some buyers on Tuesday amid a combination of supporting factors.
- Fed rate cut bets undermine the USD and support the Kiwi amid a positive risk tone.
- Escalating the US-China trade war might keep a lid on any further gains for the Kiwi.
The NZD/USD pair gains strong positive traction on Tuesday and builds on its steady intraday ascent through the first half of the European session. The momentum lifts spot prices back above the 0.5600 mark and is sponsored by the emergence of fresh US Dollar (USD) selling, though the fundamental backdrop warrants some caution for bullish traders.
Investors now seem convinced that a tariffs-driven US economic slowdown will force the Federal Reserve (Fed) to resume its rate-cutting cycle soon. In fact, the markets are currently pricing in the possibility that the US central bank will lower borrowing costs at least four times by the end of this year. This, along with a positive turnaround in the global risk sentiment, fails to assist the safe-haven USD to capitalize on its recent recovery move from a multi-month low and benefits the perceived riskier New Zealand Dollar (NZD).
Apart from this, reports that China is considering frontloading stimulus to mitigate the effects of US President Donald Trump's trade tariffs underpins antipodean currencies, including the Kiwi. Meanwhile, the NZD/USD pair, for now, seems to have snapped a two-day losing streak to its lowest level since March 2020, around the 0.5500 psychological mark touched on Monday. Furthermore, spot prices stall the recent sharp pullback from the 0.5850 area, or the year-to-date set last Thursday, though escalating the US-China trade war might cap gains.
Trump unveiled reciprocal tariffs of at least 10% on all imported goods last Wednesday, with China facing 54% levies under this new regime. Trump upped the ante further and threatened an additional 50% tariff on China if it doesn't withdraw a retaliatory 34% import fee on American products announced on Friday. This, in turn, makes it prudent to wait for strong follow-through buying before confirming that the NZD/USD pair has bottomed out and positioning for any further near-term appreciating move in the absence of any relevant US macro releases.
Traders might also refrain from placing aggressive directional bets and opt to wait for the release of the FOMC meeting minutes on Wednesday. Apart from this, the US Consumer Price Index (CPI) and the Producer Price Index (PPI), due on Thursday and Friday, respectively, will be looked for cues about the Fed's rate-cut path. This, in turn, will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the NZD/USD pair.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.