NZD/USD maintains position above 0.6000 near five-month highs due to US uncertainty

• NZD/USD appreciates as the US Dollar remains under pressure amid escalating economic and political uncertainty in the United States.
• Investor sentiment continues to be fragile, weighed down by the ongoing stalemate in global trade negotiations.
• NZD may encounter headwinds as the RBNZ is widely anticipated to deliver a 25 basis point rate cut in May.

NZD/USD extends its winning streak from April 9, trading near the 0.6000 level during early European hours on Tuesday. The pair continues to gain as the US Dollar (USD) weakens under the weight of growing economic and political uncertainty in the United States.

Investor sentiment remains fragile, shaken by the prolonged deadlock in global trade negotiations, particularly as China pushes back against President Trump's tariff measures. Market concerns deepened after Trump proposed an investigation into critical mineral imports, stoking fears of slower US economic growth and rising inflation.

Adding to the unease, Trump's renewed criticism of Federal Reserve (Fed) Chair Jerome Powell has reignited concerns over the Fed's independence. White House economic advisor Kevin Hassett disclosed that Trump is exploring whether he has the authority to remove Powell. In a Truth Social post, Trump warned that without swift rate cuts from the Fed, the US economy could face a significant slowdown.

Investor confidence also took a hit as the White House escalated trade tensions further, imposing tariffs on Chinese ships docking at US ports, risking disruptions to global shipping routes. China, a key trading partner for New Zealand, has shown no signs of backing down, maintaining a firm stance in the ongoing trade spat.

Despite recent gains, the NZD may encounter headwinds ahead. Markets are still fully pricing in a 25 basis point rate cut by the Reserve Bank of New Zealand (RBNZ) in May, with expectations for the Official Cash Rate to fall from 3.5% to 2.75% by year-end.

On the economic front, New Zealand's March trade data showed a robust performance, with exports rising 19% year-on-year and imports climbing 12%. This resulted in a trade surplus of NZD 970 million--the highest since the onset of the pandemic in 2020.