NZD/USD edges lower to near 0.5950 amid solid US Dollar, dovish RBNZ

• NZD/USD depreciates as the US Dollar receives support from Trump’s potential fiscal policies.
• The NZD struggles as the Trump administration may impose a 60% tariff on imports from China.
• Trump’s proposed fiscal policies could lead the Fed to adopt a more hawkish monetary policy.

The NZD/USD pair remains subdued near 0.5950 during European trading hours on Tuesday. Concerns are mounting that President-Elect Donald Trump’s expected tariff increases on Chinese goods could pressure the NZD, given New Zealand's close trade relationship with China.

Morgan Stanley’s analysis divides the Trump administration's macroeconomic policies into three primary areas: tariffs, immigration, and fiscal measures. The report anticipates that tariff policies will take precedence, with expectations for an immediate 10% tariff increase globally and a more substantial 60% increase targeting Chinese imports.

Adding to downward pressure on the NZD, China’s recent stimulus measures have underwhelmed investor expectations, weakening demand prospects for New Zealand's largest trading partner. Last week, China introduced a 10 trillion Yuan debt package but refrained from implementing direct economic stimulus measures, disappointing markets.

Meanwhile, the Reserve Bank of New Zealand (RBNZ) is anticipated to announce a more substantial 75 basis point rate cut later this month due to the significant time between meetings. A 50 basis point cut has already been fully priced in by markets.

The US Dollar (USD) continues to gain strength following the confirmation of Trump’s victory in the US election. Market analysts believe that Trump’s proposed fiscal policies could stimulate investment, spending, and labor demand, potentially heightening inflation risks. This could lead the Federal Reserve (Fed) to adopt a more hawkish monetary policy.

However, Federal Reserve Chair Jerome Powell stated on Thursday that he doesn’t anticipate Trump’s potential return to the White House impacting the Fed’s near-term policy decisions. “We don’t guess, speculate, and we don’t assume what future government policy choices will be,” Powell noted after the bank decided to lower interest rates by 25 basis points to a range of 4.50%-4.75%, as expected.