The NZD/USD pair sees modest gains, hovering around 0.5690 in early Asian trading on Thursday, as weak US economic data weighs on the US Dollar (USD). Investors remain alert to escalating trade tensions between the United States and China, the world’s two largest economies.
A disappointing US Services Purchasing Manager Index (PMI) has put pressure on the Greenback, providing support to the Kiwi. The US ISM Services PMI declined to 52.8 in January, down from a revised 54.0 in December, falling short of the market forecast of 54.3. This softer-than-expected reading signals potential economic slowdown concerns, adding downward pressure on the USD.
Meanwhile, New Zealand’s latest employment data suggests the Reserve Bank of New Zealand (RBNZ) remains on course for a rate cut. Statistics New Zealand reported that the country’s unemployment rate climbed to 5.1% in Q4 from 4.8%, marking a four-year high and exceeding the long-term average of 4.8%. With increasing expectations that the RBNZ will slash the Official Cash Rate (OCR) by 50 basis points to 3.75% in February, the NZD could face additional headwinds.
Société Générale’s FX strategists highlighted that “markets continue to price in a 50bps rate cut to 3.75% at the February 19 meeting, with expectations for the policy rate to trend toward 3.00% over the next year. This could further pressure the NZD/USD, particularly through the NZ-US two-year bond yield spread.”
Adding to the uncertainty, the US-China trade conflict resurfaced as China’s finance ministry unveiled a fresh round of tariffs on US products, including crude oil, farm equipment, and automobiles. The move came in response to the 10% tariff hike on Chinese imports imposed by US President Donald Trump. Additionally, Beijing signaled potential sanctions against several US companies, including Google, in a measured retaliation. Given China’s significance as New Zealand’s key trading partner, any escalation in trade tensions could weigh on the Kiwi.
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