The NZD/USD currency pair traded near 0.5655 during Monday’s early European session, gaining modestly as light post-holiday trading keeps volumes subdued. Despite the uptick, expectations of aggressive monetary easing by the Reserve Bank of New Zealand (RBNZ) weigh heavily on the New Zealand dollar

Markets are pricing in a 65% probability that the RBNZ will lower its Official Cash Rate (OCR) by 50 basis points to 4.25% at its February meeting. These dovish expectations have kept the kiwi under persistent bearish pressure, capping upside moves.

Meanwhile, China’s recent policy measures aimed at boosting domestic consumption may lend some support to the NZD, often seen as a proxy for China’s economic performance. The Chinese government has pledged cost-of-living relief for struggling households and additional benefits for the unemployed ahead of a key national holiday, potentially strengthening demand for New Zealand’s exports.

On the US dollar front, the Federal Reserve’s December decision to reduce rates aligns with market expectations. However, Fed Chair Jerome Powell emphasized that further rate cuts depend on continued progress in reducing inflation. The Fed’s latest dot plot projects two quarter-point cuts in 2025, down from the four initially forecasted, supporting the Greenback’s strength and limiting NZD/USD gains.

Trade Idea
A sustained break above 0.5670 in NZD/USD could target resistance near 0.5720. On the downside, a move below 0.5620 may signal further losses toward 0.5580.