NZD/USD remains subdued near 0.5900 following PBoC rate cut

• NZD/USD holds losses after the People’s Bank of China cut its one-year Loan Prime Rate to 3.00% from 3.10%.
• Traders evaluated mounting inflationary pressures in New Zealand following Q1 data.
• The US Dollar struggled following Moody’s Ratings downgrade of the US credit rating from Aaa to Aa1.

NZD/USD edges lower during Tuesday’s Asian session, trading around 0.5920 after climbing over 0.50% in the previous session. The pair remained under pressure following the People’s Bank of China’s (PBoC) latest interest rate decision.

The PBoC announced a cut to its Loan Prime Rates (LPRs), with the one-year LPR reduced from 3.10% to 3.00%, and the five-year LPR lowered from 3.60% to 3.50%. Given the strong trade ties between New Zealand and China, such policy shifts in China tend to have a notable impact on the New Zealand Dollar (NZD).

Investors continued to digest mixed economic data out of China for April. While industrial production slowed, it still exceeded expectations. However, retail sales disappointed, rising less than forecast. Meanwhile, in New Zealand, traders assessed renewed inflationary pressures after Q1 data showed the sharpest increase in producer input and output prices in nearly three years.

Market focus now shifts to the Reserve Bank of Australia’s (RBA) rate decision due later in the day. The RBA is widely expected to cut interest rates by 25 basis points, despite last week’s stronger-than-expected employment report.

On the United States (US) front, the US Dollar (USD) weakened following Moody’s decision to downgrade the country’s credit rating from Aaa to Aa1. The move echoes previous downgrades by Fitch in 2023 and S&P in 2011. Moody’s now projects US federal debt to surge to 134% of GDP by 2035, up from 98% in 2023, with the budget deficit expected to expand to nearly 9% of GDP. The downgrade reflects growing concerns over rising debt-servicing costs, expanding entitlement spending, and declining tax revenues.