NZD/USD rises above 0.5600 due to risk-on sentiment, China's stimulus measures

• NZD/USD appreciates as the NZD receives support from China's recent stimulus measures.
• PBOC Governor Pan Gongsheng emphasized that China will continue to be a driving force for the global economy.
• Market sentiment improves following reports of the incoming Trump administration considering a gradual increase in import tariffs.

NZD/USD extends its gains for the second successive day, trading around 0.5610 during the early European hours on Tuesday. The upside of the NZD/USD pair could be attributed to China's recent stimulus measures, given the close trading relationship between New Zealand and China, any changes in China's economic conditions could significantly influence antipodean markets.

People's Bank of China (PBOC) Governor Pan Gongsheng stated on Monday that "interest rate and reserve requirement ratio (RRR) tools will be utilized to maintain ample liquidity." Gongsheng reaffirmed China's plans to increase the fiscal deficit and emphasized that China will continue to be a driving force for the global economy.

Xuan Changneng, Deputy Governor of the People's Bank of China (PBOC), stated on Tuesday that the central bank will "continue implementing measures to maintain the Yuan exchange rate at a reasonable and balanced level." Changneng emphasized plans to enhance counter-cyclical policy adjustments and prevent excessive fluctuations in the exchange rate to ensure the Yuan's stability.

Additionally, the NZD/USD pair appreciates as the risk-sensitive New Zealand Dollar (NZD) gains ground amid risk-on sentiment following reports about US President-elect Donald Trump's economic team considering a gradual increase in import tariffs boosted investor confidence. According to Bloomberg, Trump's incoming administration is evaluating a phased approach to implementing tariffs, aiming to prevent a sharp rise in inflation while managing trade policy adjustments.

The US Dollar Index (DXY), which measures the US Dollar's performance against six major currencies, corrects downwards after reaching its highest level at 110.18 since November 2022. At the time of writing, the DXY maintains its position near 109.50. The USD appreciates as the recent US labor market figures for December, which is expected to support the US Federal Reserve's (Fed) decision to maintain interest rates at current levels in January.

Additionally, the reinforced hawkish sentiment surrounding the Fed's policy outlook sparked a rise in US Treasury yields, with the 2-year yield reaching 4.42% and the 10-year yield rising to 4.80% as of Monday. The higher yields are helping the Greenback stay near recent highs. The US Producer Price Index (PPI) for December will take center stage later on Tuesday.