NZD/USD recovers some intraday losses, remains bearish as Trump imposes tariffs on China

• NZD/USD rebounds after diving to a more than two-year low of 0.5516, but the outlook is still bearish.
• US President Trump has imposed a 25% tariff on Canada and Mexico and 10% on China.
• This week, investors will pay close attention to the US NFP data for January.

The NZD/USD pair pares some intraday losses after nosediving to an over-two-year low near 0.5516 in Monday's European session. The pullback move in the Kiwi pair after a sharp downside is expected to be capitalized by market participants for adding shorts as the imposition of 10% tariffs on China by United States (US) President Donald Trump has dampened the appeal of the New Zealand Dollar (NZD).

The Kiwi dollar is impacted by an economic change in China as New Zealand (NZ) is one of the leading trading partners of China.

Signs of muted trading activities in the NZ economy with China would result in further economic contraction. Such a scenario would force the Reserve Bank of New Zealand (RBNZ) to continue reducing its Official Cash Rate (OCR) further.

With the announcement of 10% tariffs on China and, 25% on Canada and Mexico, Donald Trump has started a global trade war, which is expected to boost inflationary pressures across the globe. The scenario has resulted in a significant weakness in the appeal of risk-perceived assets. Meanwhile, the appeal of the US Dollar (USD) has strengthened, with the US Dollar Index (DXY) refreshing a two-week high near 109.90.

Going forward, the US Dollar will be influenced by an array of US economic data, notably the Nonfarm Payrolls (NFP), which will show the current status of the labor market. Signs of strong job data would boost expectations that the Federal Reserve (Fed) will keep interest rates at their current levels for longer.