NZD/USD recovers above 0.5600 as PBOC reportedly signals rate cuts

• NZD/USD rebounds to near 0.5605 in Friday's early European session, adding 0.26% on the day. 
• PBoC signalled potential rate cuts this year, supporting the China-proxy Kiwi. 
• Trump's tariff threat and the cautious stance of the Fed might cap the pair's upside. 

The NZD/USD pair recovers some lost ground to around 0.5605 during the early European session on Friday. The prospect that the People's Bank of China (PBoC) will likely cut its main rate this year provides some support to the China-proxy New Zealand Dollar (NZD). 

The Chinese central bank is reportedly planning to cut interest rates "at an appropriate time" this year, per the Financial Times. Additionally, the National Development and Reform Commission of the People's Republic of China (NDRC) noted that there is ample room for macro policies in 2025, adding that it's fully confident in achieving continued economic recovery in 2025. The supportive measures from China boost the Kiwi, as China is a major trading partner for New Zealand. 

On the other hand, US President-elect Donald Trump's tariff threat could drag the Kiwi lower against the USD. In December, Trump promised new tariffs of 25% on all goods coming from Mexico and Canada and 10% on China. Analysts expect that it would hit an already weak Chinese economy, which would have spillover effects on New Zealand.

The expectation of fewer Federal Reserve (Fed) interest rate cuts in 2025 might underpin the Greenback and create a headwind for the pair. The Fed hinted that it will be more cautious in rate reductions as inflation remains stubbornly above its 2% target and the economy remains strong. The US central bank indicated that it probably would only lower twice more this year, according to the Summary of Economic Projections, or dot plot.