NZD/USD stretches higher to near 0.6110 despite a risk aversion sentiment

• NZD/USD gains ground as China attempts to stabilize its money market.
• Kiwi Trade Balance NZD (YoY) improved to $-13.57B from $-13.90B prior.
• Fed is highly anticipated to make no policy adjustment on February 31.

NZD/USD makes gains after two days of losses, rebounding to near 0.6110 during the early European session on Monday. Despite the risk aversion sentiment following the drone attack on a United States (US) post in Jordan on Sunday, the US Dollar (USD) remains strong while the NZD/USD pair has moved upward.

The New Zealand Dollar (NZD) might have found support from the People's Bank of China's (PBoC) consideration of a potential cut in the Medium-term Lending Facility (MLF) rate. Given the close trade partnership between China and New Zealand, any developments in China's monetary policy can impact the Kiwi Dollar. Additionally, the Chinese authorities' efforts to stabilize the stock market could provide support to New Zealand.

According to Statistics New Zealand on Monday, the nation's Trade Balance NZD (YoY) for December was reported at $-13.57B, slightly improving from the prior reading of $-13.90B. Exports decreased to $5.94B in December compared to $5.99B previously, while Imports declined to $6.26B from $7.20B in November.

Investors consider the likelihood of the Federal Reserve (Fed) implementing policy easing as US inflation indicates a slowdown. The CME FedWatch Tool indicates that futures traders have priced in a 53% probability of the Fed cutting interest rates for the first time in this cycle during the March meeting.

Traders are expected to closely watch essential economic indicators, particularly Tuesday's releases of the US Housing Price Index and Consumer Confidence figures, to gain additional insights into the market following the forthcoming Federal Open Market Committee (FOMC) statement on Wednesday.