NZD/USD sticks to gains near 0.5600 on weaker USD; bulls seem cautious amid tariff worries

• NZD/USD attracts some buyers on Tuesday amid a combination of supporting factors.
• Fed rate cut bets undermine the USD and support the Kiwi amid a positive risk tone.
• Escalating the US-China trade war might keep a lid on any further gains for the Kiwi.

The NZD/USD pair gains strong positive traction on Tuesday and builds on its steady intraday ascent through the first half of the European session. The momentum lifts spot prices back above the 0.5600 mark and is sponsored by the emergence of fresh US Dollar (USD) selling, though the fundamental backdrop warrants some caution for bullish traders.

Investors now seem convinced that a tariffs-driven US economic slowdown will force the Federal Reserve (Fed) to resume its rate-cutting cycle soon. In fact, the markets are currently pricing in the possibility that the US central bank will lower borrowing costs at least four times by the end of this year. This, along with a positive turnaround in the global risk sentiment, fails to assist the safe-haven USD to capitalize on its recent recovery move from a multi-month low and benefits the perceived riskier New Zealand Dollar (NZD).

Apart from this, reports that China is considering frontloading stimulus to mitigate the effects of US President Donald Trump's trade tariffs underpins antipodean currencies, including the Kiwi. Meanwhile, the NZD/USD pair, for now, seems to have snapped a two-day losing streak to its lowest level since March 2020, around the 0.5500 psychological mark touched on Monday. Furthermore, spot prices stall the recent sharp pullback from the 0.5850 area, or the year-to-date set last Thursday, though escalating the US-China trade war might cap gains.

Trump unveiled reciprocal tariffs of at least 10% on all imported goods last Wednesday, with China facing 54% levies under this new regime. Trump upped the ante further and threatened an additional 50% tariff on China if it doesn't withdraw a retaliatory 34% import fee on American products announced on Friday. This, in turn, makes it prudent to wait for strong follow-through buying before confirming that the NZD/USD pair has bottomed out and positioning for any further near-term appreciating move in the absence of any relevant US macro releases.

Traders might also refrain from placing aggressive directional bets and opt to wait for the release of the FOMC meeting minutes on Wednesday. Apart from this, the US Consumer Price Index (CPI) and the Producer Price Index (PPI), due on Thursday and Friday, respectively, will be looked for cues about the Fed's rate-cut path. This, in turn, will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the NZD/USD pair.