- NZD/USD climbs to around 0.5580 in Tuesday’s Asian session.
- Traders move to price in five Fed rate cuts by year-end.
- China’s central bank said it will provide lending support to sovereign funds to stabilize the market.
The NZD/USD pair attracts some buyers to around 0.5580 during the Asian trading hours on Tuesday. US President Donald Trump’s tariffs on trade partners have raised fears of the potential recession in the United States, weighing on the Greenback. The Reserve Bank of New Zealand (RBNZ) interest rate decision will take center stage on Wednesday.
Traders are now pricing in five 25 basis points (bps) rate cuts from the Federal Reserve (Fed) by year-end as rising fears of a recession in the US are exacerbating the pricing in the past week. According to the CME FedWatch tool, derivatives markets now imply a 44% possibility that the Fed will cut rates at its next meeting on May 6-7, up from 14% a week ago. The rising expectation of more Fed rate reductions this year drags the US Dollar (USD) lower and acts as a tailwind for NZD/USD.
On the other hand, China’s stimulus plans could underpin the China-proxy Kiwi, as China is a major trading partner of New Zealand. The People’s Bank of China (PBoC) said early Tuesday that it will provide support to a sovereign fund when needed as it firmly supports its decision to buy more stocks. In a statement, China’s central bank said that it will step up funding aid via a re-lending program to Central Huijin Investment Ltd. when it’s necessary, as needed, to ensure capital market stability.
All eyes will be on the RBNZ interest rate decision on Wednesday, which is expected to cut its Official Cash Rate (OCR) by 25 bps to 3.5%. The move comes amid easing inflation, slowing economic growth, and emerging signs of labor market weakness. Nearly 90% of the economists from the Reuters poll expect another 25 bps cut in May. The median forecast indicated a further 25 bps reduction in the third quarter, which would bring the OCR to 3.00% by the end of September.
