The NZD/USD currency pair is showing a rise, reaching approximately 0.5655 during the early hours of trading in Europe on Monday. Despite this upward movement, expectations surrounding the Reserve Bank of New Zealand’s (RBNZ) potential for easier monetary policy may limit the New Zealand Dollar’s (NZD) gains. The trading environment remains muted as many market participants are still adjusting from recent holidays.
The NZD continues to face downward pressure, primarily due to predictions of a more dovish stance from the RBNZ. Current assessments suggest a near 65% probability that the central bank will reduce the cash rate by 50 basis points, bringing it down to 4.25% during its scheduled meeting in February. The anticipated monetary easing is leading to bearish sentiment surrounding the Kiwi dollar.
Conversely, new stimulus measures from the Chinese government aimed at boosting private consumption may provide some support for the NZD, given New Zealand’s strong trade ties with China. Recent announcements indicate that the Chinese government plans to distribute handouts to individuals facing cost-of-living challenges and intends to enhance benefits for unemployed citizens, coinciding with an important national holiday. This initiative could invigorate demand for New Zealand’s exports and potentially stabilize the NZD.
On the other side of the equation, the US dollar may experience support following the Federal Reserve’s recent decisions and communicated intentions. At its December meeting, the Fed lowered interest rates as anticipated, while future cuts seem dependent on continued progress in tackling inflation. The latest forecasts suggest that the Fed is now considering only two quarter-percent rate reductions next year instead of the previously projected four. The cautious approach from the Fed may strengthen the US dollar, creating headwinds for the NZD/USD pair as market dynamics continue to evolve.
