NZD/USD posts modest gains above the mid-0.6000s amid risk-on impulse

• NZD/USD trades with mild gains around 0.6077 on Tuesday. 
• FOMC members emphasized that early rate cuts are probably not appropriate. 
• New Zealand’s Business NZ PSI fell back into contraction in December after reaching a six-month high in November.

The NZD/USD pair posts modest gains above the mid-0.6000s during the early Asian trading hours on Tuesday. The upside of the pair remains capped as investors remain concerned about a potential downturn in the property sector, a slowing economy, and subdued investor sentiment in China. NZD/USD currently trades near 0.6077, up 0.03% for the day. 

FOMC members cautioned that early rate cuts are probably not appropriate and that the committee will need to be doubly sure that inflation is settling sustainably around 2.0% before cutting interest rates. San Francisco Federal Reserve Bank President Mary Daly said on Friday that the Fed has a lot of work left to do on bringing inflation back down to the 2% target, and it’s premature to think interest-rate cuts are around the corner.

The latest data from Business NZ revealed on Tuesday that New Zealand’s Business NZ Performance of Services Index (PSI) came in at 48.8 in December from 51.2 in November. The Business NZ Head of Research Stephen Toplis stated that the softening PSI is bad news for both near-term growth and employment in New Zealand. 

Additionally, concerns about China’s growth momentum remain amid a protracted property crisis, sluggish consumer and business confidence, and poor global growth. This, in turn, exerts some selling pressure on the China-proxy New Zealand Dollar (NZD) and acts as a headwind for NZD/USD.

Looking ahead, the US Richmond Fed Manufacturing Index for January will be due on Tuesday. On Wednesday, New Zealand’s Consumer Price Index for the fourth quarter (Q4) will be in the spotlight. Traders will take cues from these figures and find trading opportunities around the pair.