NZD/USD sticks to modest gains above mid-0.5500s after China’s Trade Balance data

• NZD/USD stages a modest recovery from a multi-year low touched on Friday.
• The uptick lacks any obvious catalyst and runs the risk of fizzling out quickly. 
• Hawkish Fed expectations continue to underpin the USD and cap spot prices.

The NZD/USD pair kicks off the new week on a positive note and for now, seems to have snapped a four-day losing streak to its lowest level since October 2022 touched on Friday. Spot prices stick to modest intraday gains around the 0.5565 area and move little following the release of China's Trade Balance data.

The Customs General Administration of China reported that the trade surplus widened to CNY752.91 billion in December from the previous figure of CNY692.8 billion in the wake of a 10.9% YoY jump in exports. Additional details of the report revealed that the country’s imports rose by 1.3% YoY in the same period vs. 1.2% registered in November. The market reaction, however, turns out to be muted amid concerns about a fragile economy, which, in turn, keeps a lid on any meaningful appreciation for antipodean currencies, including the Kiwi. 

The US Dollar (USD), on the other hand, stands tall near its highest level in over two years amid growing acceptance that the Federal Reserve (Fed) will pause its rate-cutting cycle later this month. The expectations were reinforced by Friday's upbeat US Nonfarm Payrolls (NFP) report, which showed that the economy added 256,000 in December compared to 212,000 previous and market expectations for a reading of 160,000. Adding to this, the Unemployment Rate unexpectedly edged lower to 4.1% from 4.2% registered in November. 

Meanwhile, hawkish Fed expectations, along with geopolitical risks, temper investors' appetite for riskier assets. This is evident from a generally weaker tone around the equity markets, which further seems to act as a tailwind for the safe-haven buck and contribute to capping the risk-sensitive Kiwi. Adding to this, bets for a more aggressive policy easing by the Reserve Bank of New Zealand (RBNZ) warrant some caution before confirming that the NZD/USD pair has formed a near-term bottom and positioning for additional gains.