NZD/USD weakens below 0.5650 as traders await clarity on Trump tariffs on China

• NZD/USD softens to around 0.5630 in Friday's early Asian session. 
• Trump said China is going to end up paying a tariff as well, weighing on the China-proxy NZD. 
• Discouraging New Zealand's economic outlook and RBNZ dovish bets could undermine the Kiwi.

The NZD/USD pair edges lower to near 0.5630 during the early Asian session on Friday, pressured by threats of tariffs from US President Donald Trump against China. Investors await more clarity from Trump's tariff policies. Also, the US Personal Consumption Expenditures (PCE), Personal Income/Spending, and the Chicago Purchasing Managers' Index (PMI) will be in focus, which is due later on Friday. 

Late Thursday, Trump emphasized his plans to impose 25% tariffs on Canada and Mexico on February 1 but has not set a firm date for China. However, Trump noted that China is going to end up paying a tariff as well, and the administration is in the process of doing a China tariff. The markets might turn cautious later in the day while awaiting more clarity about tariff policies. Any signs of a renewed trade war between the United States and China could weigh on the China-proxy Kiwi, as China is a major trading partner to New Zealand.

The US Federal Reserve (Fed) decided to hold interest rates steady on Wednesday, and Fed Chair Jerome Powell said there would be no rush to cut them again until inflation and job data made it appropriate. Fed officials will keep an eye on Trump's policies on immigration, tariffs, taxes and other areas that could prove disruptive. The hawkish hold from the Fed is likely to lift the US Dollar (USD) and create a headwind for NZD/USD in the near term.

The Reserve Bank of New Zealand (RBNZ) chief economist Paul Conway painted a dim picture of the country's economic outlook, cutting weak productivity, investment and trade. Additionally, the dovish expectation from the RBNZ could contribute to the New Zealand Dollar's (NZD) downside. "In line with RBNZ guidance, markets continue to imply another 50bps rate cut to 3.75% in February and the policy rate to bottom around 3.00% over the next 12 months. RBNZ/Fed policy trend remains drag for NZD/USD," noted BBH FX analysts.