The NZD/USD pair regained some ground, trading around 0.5605 during the early European session on Friday, buoyed by expectations that the People’s Bank of China (PBoC) will likely reduce its key interest rate this year.
According to the Financial Times, the PBoC is planning to cut rates “at an appropriate time” in 2025. This prospect has provided support to the New Zealand Dollar (NZD), which is often seen as a proxy for China’s economy. The National Development and Reform Commission (NDRC) of China further bolstered market sentiment, stating that there is significant room for macroeconomic policies in 2025 and expressing confidence in achieving ongoing economic recovery. As China is a major trading partner for New Zealand, these developments are seen as positive for the Kiwi.
However, the Kiwi’s gains are tempered by concerns over US President-elect Donald Trump’s tariff threats, which could weaken the NZD against the US Dollar. In December, Trump vowed to impose a 25% tariff on all goods from Mexico and Canada, along with a 10% tariff on Chinese goods. Analysts predict these tariffs could negatively impact an already fragile Chinese economy, with spillover effects on New Zealand.
Further complicating matters for the NZD/USD pair, expectations of fewer interest rate cuts from the Federal Reserve in 2025 may bolster the US Dollar. The Fed has signaled a more cautious approach to rate reductions, as inflation remains above its 2% target and the economy shows strength. According to the Summary of Economic Projections, the Fed is likely to implement only two more rate cuts this year.
Related Topics:
