The New Zealand Dollar (NZD) extended its decline on Friday, reaching around 0.5615 against the US Dollar (USD) during the early Asian session. The weakness of the NZD is attributed to concerns over sluggish consumer demand and a prolonged downturn in China’s property market, which continues to weigh on investor sentiment. With the New Year holiday approaching, trading volumes are expected to remain low.
Weak Chinese Data Pressure the NZD
Recent data revealed that China’s industrial profits fell for the fourth consecutive month, dropping by 7.3% year-on-year in November. This sustained weakness in domestic demand in China, New Zealand’s largest trading partner, has further undermined the NZD, which is often seen as a proxy for China’s economic health.
US Tariff Speculation Adds to NZD Pressure
Adding to the NZD’s downside is growing speculation about the possibility of a 10% tariff on Chinese goods from the previous Trump administration. Analysts suggest that such tariffs could contribute to inflation, potentially leading the Federal Reserve to slow or pause its rate decisions in the coming year. This would likely strengthen the US Dollar, further exerting pressure on the NZD/USD pair.
Rate Cut Expectations Weigh on NZD
Market sentiment is also shaped by expectations that the Reserve Bank of New Zealand (RBNZ) will continue cutting interest rates to stimulate economic growth, following the country’s recession in the third quarter of 2023. The market has priced in a nearly 70% probability of a 50 basis point (bps) rate cut in February, with rates expected to fall to 3.0% by the end of 2025. These expectations of further easing contribute to the NZD’s ongoing weakness against the US Dollar.
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