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The NZD/USD pair has fallen to 0.5590 as of Friday, marking a two-year low driven by a strong US dollar and concerns over China’s economic performance. The decline in the New Zealand dollar comes ahead of the release of the US jobs report for December, a critical data point that will shape market expectations for the Federal Reserve’s monetary policy trajectory. Investors largely anticipate that the Fed will maintain its cautious stance on rate adjustments, lending strength to the US Dollar while pressuring other currencies.
The Federal Reserve’s December meeting minutes highlighted ongoing concerns about inflation. The minutes revealed the Fed’s reluctance to implement aggressive monetary policy easing considering persistent inflation risks. Adding to this cautious approach are fears that US President-elect Donald Trump’s proposed tariff policies could soon exacerbate inflationary pressures. As a result, the Fed is unlikely to ease monetary conditions quickly or extensively, providing robust support for the US dollar.
Weak inflation data from China, New Zealand’s largest trading partner, adds to the NZD’s troubles. The subdued inflation figures point to waning domestic demand in China, a worrying signal for global trade-dependent economies like New Zealand. Weak Chinese demand for goods and commodities directly threatens New Zealand’s exports, further pressuring the NZD/USD pair.
Domestically, New Zealand is grappling with a deep recession driving expectations of further monetary easing. The Reserve Bank of New Zealand (RBNZ) will meet in February, and the baseline scenario points to another 50-basis-point rate cut, reducing the official cash rate from the current 4.25% to 3.75%. By the end of 2025, the rate could decline to around 3.00% as the RBNZ seeks to support the struggling economy with more affordable credit.
To sum up, rising recessionary pressures, weak domestic demand, and limited external demand from China paint a challenging picture for the New Zealand dollar.
The outlook for NZD/USD remains bearish, driven by both domestic and global factors. The Fed’s cautious approach, coupled with a robust US dollar and weak Chinese demand, presents formidable challenges for the NZD. Domestically, New Zealand’s recessionary pressures and anticipated rate cuts by the RBNZ are likely to keep the currency under sustained pressure.
Unless there is a significant reversal in China’s economic conditions or a shift in the Federal Reserve’s policy stance, the NZD/USD pair is expected to remain downward, with 0.5200 emerging as a key level to watch.
By RoboForex Analytical Department
Disclaimer
Any forecasts contained herein are based on the author's particular opinion. This analysis may not be treated as trading advice. RoboForex bears no responsibility for trading results based on trading recommendations and reviews contained herein.
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