NZD/USD appreciates beyond 0.5750 as the US Dollar rally falters
- The New Zealand Dollar extends gains beyond 0.5750 after bouncing from the 0.5700 area.
- Hopes of a de-escalation of the Sino-US trade rift are providing support to the China-proxy NZD.
- The US Dollar rally loses momentum as the focus shifts to the Fed.
The New Zealand Dollar bounced up from the support area above 0.5700 and has retraced Tuesday’s losses to reach intraday highs right above 0.5750 in the early European trading session. Easing Sino-US trade tensions are providing support to the China-Proxy NZD, while hopes of back-to-back interest rate cuts by the Fed are weighing on the US Dollar.
Markets have welcomed signals towards the de-escalation of tension with China by US President Donald Trump, who showed optimism about the possibility of reaching a fair deal with Chinese President Xi Jinping at their meeting in South Korea next week.
Fed rate cuts come into focus
Beyond that, investors are starting to position for next week’s Fed monetary policy meeting. A 25 basis points rate cut is practically written in stone, with another one in December seen as highly likely, according to a survey released by Reuters on Tuesday that also revealed concerns that the US central bank might go too far with monetary easing.
Meanwhile, the US government shutdown is in its fourth week with no end in sight. The US Senate failed to find a way to restore funding for the 11th time on Monday. Trump refused to meet Democratic lawmakers on Tuesday, suggesting that this will be one of the longest shutdowns in history.
This is weighing on the US Dollar, while the New Zealand Dollar drew support from the resilient data from China the acceleration of New Zealand’s inflationary pressures. These figures, however, did not change the view that the RBNZ will be forced to cut rates further before the end of the year to support a softening economic growth.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
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