The NZD/USD pair edged higher toward 0.5580 during Asian trading hours on Tuesday, buoyed by growing expectations of aggressive U.S. Federal Reserve rate cuts and optimism around fresh Chinese stimulus measures. The advance snapped a modest pullback in the pair and positioned the Kiwi for potential gains ahead of the Reserve Bank of New Zealand’s (RBNZ) policy decision.
Mounting fears of a U.S. recession, triggered by President Donald Trump’s sweeping trade tariffs, have weighed heavily on the U.S. Dollar (USD). Derivatives markets, as reflected by the CME FedWatch Tool, now price in five 25 basis point (bps) cuts by year-end, with a 44% chance of a rate cut as early as the May 6–7 meeting—up sharply from 14% a week ago. This dovish shift continues to erode the USD’s appeal, providing a tailwind for NZD/USD.
China Stimulus Supports the Kiwi
The New Zealand Dollar (NZD), often seen as a proxy for Chinese economic activity, also found support from Beijing’s renewed stimulus efforts. The People’s Bank of China (PBoC) pledged early Tuesday to offer funding assistance via a re-lending program to Central Huijin Investment Ltd., reinforcing its support for increased stock purchases aimed at stabilizing capital markets. The move follows similar commitments from China Chengtong Holdings and China Reform Holdings Corp.
Spotlight on the RBNZ
Market attention now turns to the RBNZ’s interest rate decision on Wednesday, where the central bank is widely expected to cut the Official Cash Rate (OCR) by 25 bps to 3.5%, amid signs of cooling inflation, slowing GDP growth, and a weakening labor market. A Reuters poll of economists showed that 90% expect another 25 bps cut in May, while the median forecast anticipates a further cut in Q3, bringing the OCR to 3.00% by the end of September.
With global economic risks rising and domestic headwinds mounting, the RBNZ’s policy trajectory could play a pivotal role in shaping the NZD’s near-term direction. Traders will closely watch the central bank’s tone and forward guidance for signals on future easing.
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