The NZD/USD pair is on a second consecutive day of gains, trading around 0.5610 in early European hours on Tuesday. This continued upside is largely driven by China’s recent economic stimulus measures, given the close economic ties between New Zealand and China. Any shifts in China’s economic landscape can significantly impact markets in the antipodes.
On Monday, People’s Bank of China (PBOC) Governor Pan Gongsheng reaffirmed that the central bank would employ both interest rate and reserve requirement ratio (RRR) tools to ensure ample liquidity. Gongsheng also underscored China’s commitment to increasing its fiscal deficit, positioning the country as a continued global economic engine.
In a related development, PBOC Deputy Governor Xuan Changneng confirmed on Tuesday that the central bank would take further steps to stabilize the Yuan exchange rate. Changneng outlined plans for enhanced counter-cyclical policy adjustments aimed at curbing excessive fluctuations and maintaining a balanced exchange rate.
Meanwhile, the New Zealand Dollar (NZD) is benefiting from a broader risk-on sentiment, with the currency gaining ground as markets react positively to reports that US President-elect Donald Trump’s economic team is contemplating a gradual approach to raising import tariffs. According to Bloomberg, this phased strategy seeks to curb potential inflation spikes while carefully managing trade policy shifts, boosting investor confidence.
The US Dollar Index (DXY), which tracks the performance of the US dollar against six major currencies, has corrected lower after reaching a high of 110.18, the strongest level since November 2022. At the time of writing, the DXY stands at 109.50. The US dollar has found support from the recent robust US labor market data for December, reinforcing expectations that the Federal Reserve will hold interest rates steady in January.
The hawkish tone of the Fed’s policy outlook has also contributed to rising US Treasury yields, with the 2-year yield climbing to 4.42% and the 10-year yield reaching 4.80% as of Monday. These higher yields are helping to keep the dollar strong. Attention now shifts to the upcoming release of the US Producer Price Index (PPI) for December, which is expected to make waves in the market later on Tuesday.
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