NZD/USD bulls remain on the defensive near 0.5700; focus remains on US CPI report

NZD/USD drifts lower on Wednesday amid a modest USD bounce from a multi-month low.
China’s economic woes and escalating US-China trade tensions further undermine the Kiwi.
Fed rate cut bets and a positive risk tone cap the USD and support the pair ahead of US CPI.

The NZD/USD pair struggles to capitalize on the overnight bounce from a multi-day low, around the 0.5680-0.5675 region and attracts fresh sellers on Wednesday amid a modest US Dollar (USD) uptick. Spot prices remain depressed through the first half of the European session and currently trade near the 0.5700 mark, down 0.15% for the day as traders keenly await the release of the US consumer inflation figures.

Investors will look to the crucial US Consumer Price Index (CPI) report for cues about the Federal Reserve's (Fed) rate-cut path. This, in turn, should influence the near-term USD price dynamics and provide some meaningful impetus to the NZD/USD pair. Heading into the key data risk, traders opt to lighten their USD bearish bets following the recent slump to the lowest level since October 16. Apart from this, the worsening US-China relations and persistent deflationary pressures in the world’s second-largest economy, which tends to undermine antipodean currencies, weigh on the NZD/USD pair.

In fact, China’s National Bureau of Statistics (NBS) reported on Sunday that consumer prices plunged to their lowest level in more than a year and factory-gate prices contracted for 29 consecutive months. Meanwhile, US President Donald Trump decided to double the levy on Chinese imports to 20% on March 4 and also designated China as a currency manipulator for the first time in decades. In response, China announced retaliatory tariffs of up to 15% on US products, raising the risk of a further escalation of the trade war between the world's two largest economies and exerting some pressure on the Kiwi.

Any meaningful USD appreciation, however, seems elusive in the wake of rising bets that a tariff-driven slowdown in the US economic activity might force the Federal Reserve (Fed) to cut interest rates several times this year. Apart from this, a generally positive tone around the equity markets contributes to capping the safe-haven buck and offers some support to the risk-sensitive New Zealand Dollar (NZD). This, in turn, warrants caution before placing aggressive bearish bets around the NZD/USD pair and confirming that the recent move-up witnessed over the past week or so has run out of steam.

US-China Trade War FAQs

What does “trade war” mean?

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.

What is the US-China trade war?

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.

Trade war 2.0

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.