The NZD/USD currency pair is showing signs of recovery, trading around 0.5605 in the early hours of the European session on Friday, reflecting a gain of 0.26% for the day. This rebound can be attributed to expectations that the People’s Bank of China (PBoC) may implement interest rate cuts later this year, which has positively influenced the New Zealand Dollar (NZD), often seen as a proxy for the Chinese economy.
Recent reports suggest that the PBoC is poised to lower its benchmark interest rates “at an appropriate time” within the year. The National Development and Reform Commission of China also indicated that there is significant potential for macroeconomic policy interventions in 2025, expressing confidence in the continuation of economic recovery. Given China’s role as a key trading partner for New Zealand, these anticipated policy adjustments from Beijing provide essential support for the Kiwi Dollar.
However, the outlook for the NZD/USD pair is complicated by geopolitical tensions. The threat of new tariffs from the incoming U.S. administration poses a significant risk, with a proposed 25% tariff on imports from Mexico and Canada, along with a 10% tariff on goods from China. Analysts warn that such tariffs could negatively impact the fragile Chinese economy, leading to ripple effects that might weigh down New Zealand’s economic performance.
Further complicating the situation is the Federal Reserve’s cautious stance regarding interest rate cuts. With inflation remaining above the central bank’s target and a robust economy, the Fed has suggested that it is likely to maintain a more prudent approach to rate reductions. This could bolster the U.S. dollar and create additional headwinds for the NZD/USD pair, as expectations point to only a couple of reductions in rates for the remainder of the year.
