NZD/USD gathers strength above 0.5850 as US and China agree to ease tariffs for 90 days

• NZD/USD attracts some buyers to around 0.5865 in Tuesday’s early Asian session. 
• The US and China agreed to a 90-day pause on tariffs and a reduction in reciprocal tariffs.
• Markets expect two additional rate cuts towards the end of the year.

The NZD/USD pair trades in positive territory around 0.5865 during the Asian session on Tuesday. The New Zealand Dollar (NZD) strengthens against the Greenback after the US and China announced a trade deal, easing fears of a trade war between the world’s two largest economies. Traders will keep an eye on the US April Consumer Price Index (CPI) report, which is due later on Tuesday.  

US President Donald Trump hailed a “total reset” in relations between China and the US after the countries agreed to a 90-day pause on tariffs and a reduction in reciprocal tariffs by 115 percentage points. With the 115 percentage point deduction, Chinese duties on US goods will be lowered to 10%, while the US tax on Chinese goods will be reduced to 30%. These positive developments provide some support to the China-proxy Kiwi, as China is a major trading partner of New Zealand. 

On the other hand, the easing of trade tensions between the world’s two largest economies gives investors their clearest indication yet that the Trump administration is taking a softer approach than expected, raising hope that the US economy can avoid a recession. This might lift the US Dollar (USD) and create a headwind for the pair. 

Swap markets have priced in the Fed’s first 25 basis points (bps) rate cut for the September meeting, and they expect two additional rate reductions towards the end of the year. Last week, they indicated three cuts this year, with a change likely as soon as July.