NZD/USD softens below 0.5650 despite China’s fiscal support measures

• NZD/USD drifts lower to 0.5645 in Tuesday’s Asian session.
• The Chinese MoF said it was committed to fostering domestic demand growth. 
• The expectation of the Fed rate cut path might underpin the USD. 

The NZD/USD pair remains on the defensive around 0.5645 during the Asian trading hours on Tuesday. The announcement of China’s fresh fiscal support measures fails to boost the Kiwi as the markets turn cautious ahead of the holiday-shortened trading week. 

China’s Ministry of Finance said on Tuesday that the authorities will step up fiscal spending in 2025 and plan to intensify efforts to mitigate risks in key sectors. Ministry of Finance added that the government is committed to fostering domestic demand growth, and fiscal spending will focus more on people's livelihoods and boost consumption. However, the announcement has little to no impact on the New Zealand Dollar (NZD). 

On the other hand, the US Federal Reserve (Fed) cut its federal funds rate by 25 basis points (bps), bringing the rate to a range of 4.25% to 4.50%, down from its previous target range of 4.5% to 4.75%. "Fed officials might prefer to be cautious in light of uncertainty about the new administration's policies, especially possible tariff increases," noted Goldman Sachs economists. 

Last month, US President-elect Donald Trump unveiled plans to place a 25% tariff on all imports from Mexico and Canada in January and intends to levy an additional 10% fee on all imports from China. Many economists expect the potential Trump’s tariff policies could fuel inflation and might convince the Fed to slow or pause its rate decisions next year in a wait-and-see approach. This, in turn, might support the Greenback and act as a headwind for NZD/USD.