NZD/USD trades above 0.5800 after rebounding from two-year lows

• NZD/USD rebounds from a two-year low of 0.5761, which was recorded on Wednesday.
• The New Zealand Dollar may struggle as China may allow the Yuan to depreciate further in 2025
• The US Dollar remains subdued due to rising odds of a Fed rate cut next week.

NZD/USD breaks its two days of losses after reaching a two-year low at 0.5761 on Wednesday, currently trading around 0.5820 during the early European hours on Thursday. However, the New Zealand Dollar (NZD) remains under pressure due to reports that Beijing may allow the Yuan to depreciate further next year to offset the impact of US tariffs. A weaker Yuan often negatively affects the NZD, considering New Zealand's heavy reliance on China as a key export market.

Additionally, market participants are anticipating a significant 50 basis point (bps) interest rate cut by the Reserve Bank of New Zealand (RBNZ) in its February meeting, which is contributing to the weakening of the New Zealand Dollar (NZD).

The upside of the NZD/USD pair comes as the US Dollar (USD) corrects downwards after breaking its four-day winning streak despite higher US Treasury yields. The US Dollar Index (DXY), which measures the value of the US Dollar against its six major peers, trades around 106.40 with 2-year and 10-year yields on US Treasury bonds standing at 4.16% and 4.28%, respectively, at the time of writing.

The US Dollar encounters headwinds as the latest US CPI report appears insufficient to dissuade the Federal Reserve (Fed) from reducing interest rates in December. According to the CME FedWatch Tool, there is nearly a 99% probability of a 25 basis point rate cut on December 18. Traders now turn their attention to the US November Producer Price Index (PPI), set for release on Thursday, for new market catalysts.