The NZD/USD pair has drifted lower to 0.5645 during Tuesday’s Asian trading hours. It remains on the defensive around this level as the market is cautious ahead of the holiday-shortened trading week.
China’s Fiscal Support Announcement
Details of the Announcement
China’s Ministry of Finance stated on Tuesday that the authorities will step up fiscal spending in 2025. They also plan to intensify efforts to mitigate risks in key sectors. Moreover, the government is committed to fostering domestic demand growth, and fiscal spending will focus more on people’s livelihoods and boost consumption.
Lack of Impact on NZD
However, this announcement has had little to no impact on the New Zealand Dollar (NZD). Despite these efforts by China, the currency pair continues to show weakness.
Fed’s Rate Cut and Future Outlook
Recent Rate Cut
The US Federal Reserve (Fed) cut its federal funds rate by 25 basis points (bps). This brought the rate to a range of 4.25% to 4.50%, down from its previous target range of 4.5% to 4.75%.
Uncertainty Over New Administration’s Policies
“Fed officials might prefer to be cautious in light of uncertainty about the new administration’s policies, especially possible tariff increases,” noted Goldman Sachs economists.
Trump’s Tariff Plans and Impact on USD
Last month, US President-elect Donald Trump unveiled plans to place a 25% tariff on all imports from Mexico and Canada in January and intends to levy an additional 10% fee on all imports from China. Many economists expect that these potential tariff policies could fuel inflation. This might then convince the Fed to slow or pause its rate decisions next year in a wait-and-see approach. As a result, it could support the Greenback (USD) and act as a headwind for the NZD/USD pair.
In conclusion, the NZD/USD pair’s softening below 0.5650 is due to a combination of factors. The lack of reaction to China’s fiscal support measures, along with the Fed’s cautious stance considering the incoming Trump administration’s policies and potential tariff impacts, are all influencing the pair’s performance. Traders will be closely watching how these elements evolve in the coming days and weeks.
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