The NZD/USD currency pair has begun the week with a modest rebound from a multi-year low hit last Friday, snapping a four-day losing streak. The current trading levels are hovering around 0.5565, but the uptick appears lacking in strong drivers, raising concerns that it may not hold in the near term.
Recent trade data from China revealed a widening trade surplus that climbed to CNY752.91 billion in December, up from CNY692.8 billion, supported by a 10.9% year-on-year increase in exports. Although imports showed a slight rise of 1.3% year-on-year, the overall market reaction has been subdued. This reticence is largely attributed to worries regarding the health of the Chinese economy, which limits significant appreciation of currencies like the New Zealand dollar.
In contrast, the US dollar remains robust, trading near its highest levels in over two years. Expectations are building that the Federal Reserve will pause its rate-cutting initiatives later this month, a sentiment bolstered by the recent positive Nonfarm Payrolls report. The data indicated that 256,000 jobs were added in December, surpassing both the previous figure and market forecasts. Additionally, the unemployment rate saw a slight decline to 4.1%, down from 4.2% in November.
These factors contribute to a more cautious investor environment, particularly in equity markets where risk appetite appears to be dwindling. Such conditions favor the US dollar, presenting a challenge for the risk-sensitive Kiwi dollar. Furthermore, mounting expectations for more aggressive easing measures from the Reserve Bank of New Zealand add another layer of caution, making it premature to declare a bottom for the NZD/USD pair or to position for further gains.
Overall, while the immediate recovery of the NZD/USD offers a glimmer of hope, the underlying economic dynamics and geopolitical risks suggest that sustaining these gains may prove challenging.
