NZD/USD holds losses around 0.5650 as business NZ PSI declines
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The NZD/USD pair traded near 0.5650 during early European hours on Tuesday, retracing gains from the previous session. The New Zealand Dollar weakened following mixed market signals, including President Trump’s trade policy announcements and disappointing domestic economic data.
Key market drivers
Trump’s trade policy review
President Trump’s inauguration sparked market volatility, with the US Dollar gaining traction after he announced plans to direct federal agencies to review existing tariff policies. This move is expected to reassess trade relationships with Canada, Mexico, and China, potentially increasing inflationary pressures and limiting the Federal Reserve’s ability to implement more than one additional rate cut in 2025.
China’s influence and NZD resilience
The NZD/USD gained some temporary footing as Trump signaled potential efforts to strengthen ties with Chinese President Xi Jinping. His delayed TikTok ban and hints of a softer stance on tariffs provided a glimmer of hope for improved trade dynamics. As China remains a critical trading partner for New Zealand, changes in its economic policies directly impact the Kiwi Dollar’s performance.
Disappointing business NZ PSI data
The New Zealand Dollar faced downward pressure as Business NZ reported a drop in the Performance of Services Index (PSI). The index fell to 47.9 in December from 49.5 in November, marking the tenth consecutive month of contraction and signaling persistent challenges in New Zealand’s service sector.
Economic outlook
The NZD/USD remains vulnerable ahead of Wednesday’s Consumer Price Index (CPI) release. Markets anticipate the annual inflation rate to drop to its lowest level since 2021, reinforcing expectations of a rate cut by the Reserve Bank of New Zealand (RBNZ). Traders currently price in an 80% likelihood that the RBNZ will lower its cash rate from 4.25% to 3.75% next month, further pressuring the Kiwi Dollar.
Technical analysis
Resistance levels
Immediate resistance is seen at 0.5680, followed by 0.5700, which could act as a significant psychological barrier.
Support levels
Key support lies at 0.5625, with a break below this level exposing the pair to further downside risks toward 0.5600 and 0.5550.
Conclusion
The NZD/USD pair is likely to remain under pressure as traders digest Trump’s trade policy shifts and monitor New Zealand’s economic data. A softer CPI print and mounting expectations of RBNZ rate cuts could weigh further on the Kiwi Dollar in the near term. However, any signs of a softer USD or improved Chinese trade dynamics may provide temporary relief for the pair.
Key market drivers
Trump’s trade policy review
President Trump’s inauguration sparked market volatility, with the US Dollar gaining traction after he announced plans to direct federal agencies to review existing tariff policies. This move is expected to reassess trade relationships with Canada, Mexico, and China, potentially increasing inflationary pressures and limiting the Federal Reserve’s ability to implement more than one additional rate cut in 2025.
China’s influence and NZD resilience
The NZD/USD gained some temporary footing as Trump signaled potential efforts to strengthen ties with Chinese President Xi Jinping. His delayed TikTok ban and hints of a softer stance on tariffs provided a glimmer of hope for improved trade dynamics. As China remains a critical trading partner for New Zealand, changes in its economic policies directly impact the Kiwi Dollar’s performance.
Disappointing business NZ PSI data
The New Zealand Dollar faced downward pressure as Business NZ reported a drop in the Performance of Services Index (PSI). The index fell to 47.9 in December from 49.5 in November, marking the tenth consecutive month of contraction and signaling persistent challenges in New Zealand’s service sector.
Economic outlook
The NZD/USD remains vulnerable ahead of Wednesday’s Consumer Price Index (CPI) release. Markets anticipate the annual inflation rate to drop to its lowest level since 2021, reinforcing expectations of a rate cut by the Reserve Bank of New Zealand (RBNZ). Traders currently price in an 80% likelihood that the RBNZ will lower its cash rate from 4.25% to 3.75% next month, further pressuring the Kiwi Dollar.
Technical analysis
Resistance levels
Immediate resistance is seen at 0.5680, followed by 0.5700, which could act as a significant psychological barrier.
Support levels
Key support lies at 0.5625, with a break below this level exposing the pair to further downside risks toward 0.5600 and 0.5550.
Conclusion
The NZD/USD pair is likely to remain under pressure as traders digest Trump’s trade policy shifts and monitor New Zealand’s economic data. A softer CPI print and mounting expectations of RBNZ rate cuts could weigh further on the Kiwi Dollar in the near term. However, any signs of a softer USD or improved Chinese trade dynamics may provide temporary relief for the pair.