The NZD/USD pair trades in positive territory around 0.5735 during the early European session on Tuesday. The New Zealand Dollar (NZD) strengthens after China’s latest action plan showed it’s trying to boost foreign investment. 

Last week, Chinese authorities published an action plan to make it easier for foreign capital to invest in domestic telecommunication and biotechnology industries. The Commerce Ministry emphasized that the action plan would be implemented by the end of 2025 and that details on subsequent supportive measures would come soon. The positive developments surrounding China’s stimulus plans underpin the China-proxy Kiwi as China is a major trading partner to New Zealand.

The stronger-than-expected New Zealand’s Retail Sales might lift the Kiwi. The country’s Retail Sales, a measure of the country’s consumer spending, rose 0.9% QoQ in the fourth quarter (Q4), the strongest gain in three years, compared to the previous reading of 0% (revised from -0.1%), according to Statistics New Zealand on Monday. This reading came in stronger than the 0.6% expected. 

On the other hand, the uncertainty and concerns over US President Donald Trump's tariff plans might boost the safe-have flows, benefitting the Greenback. US President Donald Trump said tariffs on Mexico and Canada would proceed as planned.  

Source: FXSTREET

HIGHLIGHTS:

India GDP growth likely rebounded in Oct-Dec on government spending push

As the tsunami of earth-shaking executive orders bursts out of US President Donald Trump’s Oval Office, the world tries to stay upright. Our legs seem rubbery though. Now we know what collective vertigo feels like.

For now, the shock is greatest for Washington’s closest allies. Learning from his ineffectual first term, Trump had apparently realised that reforms of any colour are a revolutionary undertaking. You hit fast and furious, you hit to shock and awe, and you hit below the belt whenever necessary. Also, as all bullies know, the easiest victims are those closest to them.

But the trouble for a reformist revolutionary though, is that he does not know where he will succeed and where he will not. It is a gamble. He throws the dice as quickly as he can, and hopes for some rationality in the randomness, for some method in the madness, and for some pattern to appear from the chaos.

What the rest of the world fears, especially small nations, is their own political resilience. How long can they survive the chaos, uncertainty and commotion? Elephants can survive long battles, the deer at their feet cannot.

Tariffs and sanctions are one thing, but the moral shifts that will clearly undermine American soft power, and the ability of the US to maintain a rules-based order, are much more interesting to watch. The latter are a writing on the wall; the former are just flavours of the day, distractions.

Power always overreaches, in walk or talk

In Southeast Asia, the first weeks of Trump 2.0 are something to approach with a mix of disbelief and schadenfreude; the first because we know that power depends on predictability, which is missing at the moment, and the second because rule-setters are as much despised for their hypocrisy as they are revered for their power.

In the thick of all this, a country like Malaysia will need to identify what its weaknesses and strengths are, how the present world order will be carrying out damage control, and what succeeding world order is possible and desirable.

Already before Trump 2.0 began this year, Malaysia had made global gestures to demonstrate dissatisfaction with Pax Americana, through its traditional support of the Palestinian cause and through its wish to be a member of BRICS, among others.

It has been clear to many discerning analysts that Malaysia’s long-term political discourse based on interracial and interfaith divisions is a cul-de-sac. It is a dead end. It can only lead towards a bankruptcy in ideas and purpose, and a preference for coercion over cooperation.

The gigantic shifts in geopolitics and geo-economics in recent years should cause a country like Malaysia to give pause, and to reconsider what it is as a country, what path it can take given the nature of the big powers it has to deal with, and what role it has in the future of humanity.

First of all, it has to consider its essence as a nation state. Was Malaysia born out of a democratic passion from within, or was it a result of colonial damage control, of British power retreating effectively and self-servingly? The answer lies somewhere in between, I assume.

Second, why was Malaysia constructed as a federation? Twice over. Was it just a means to an end, the end being a centralised state, as someone like Tun Dr Mahathir Mohamad would surely have thought? Or is the federalist model a sincere expression of the essence of Malaysian society, not to be meddled with? On that last front, we do see that practically all countries end up, or seek to end up, as de facto federal entities.

Third, all countries in the region took their modern shape during the Cold War. What was this Cold War in essence? Was this something that could end? Is socialism something whose objectives can be ignored? The First World War did not end, leading as it did to the Second World War, and the jury is still out on whether the Second World War is really over or not. Most saliently, with the rise of Trump and the polarisation of the American population, it is hard today to declare that the American Civil War did cease in 1865.

Beginnings and endings may be illusory in history. In fact, whatever patterns we observe from the past should not coax us into thinking that they will repeat themselves, and that we are imprisoned by powerful iterative forces. We should instead understand these, and learn to sidestep or neutralise them. We do not have to be prisoners of the past. Not always.

Is a multipolar world inevitable?

What seems to be the inevitable key subject of discussion in the coming years is “power”.

The Make America Great Again (Maga) movement that Trump now fronts seems to be about, paradoxically, focusing on the US as a nation state, not a global hegemon. Perhaps this is a rowdy acceptance on the part of the American people of the multipolar reality that had crept in over the last two decades.

Is the Trump phenomenon America’s way of retreating from being a global hegemon to being just a powerful nation state? Are its foreign policies damage-­control policies, and are its domestic politics typically polarising the way nation-building processes often are?

In the longer historical perspective, did the US get drawn into becoming Britannia 2.0 in the 1940s, stalling the American nation-building and the American Dream? Furthermore, fighting communism made it believe that any society-building is socialism, and therefore a taboo. Thus, its nation-building was put into cold storage.

What looms ahead, behind the Trump tsunami of executive orders is the possibility — and probability — of a multipolar world. To the extent that the US begins to act like a nation state, no matter how chaotically, a multipolar world becomes more possible. The other poles, apart from China, are all emergent to some degree. The Muslim world should coalesce around certain powers, be this Turkey or Saudi Arabia or Iran. Africa would have its regional centres of influence, Latin America has Brazil as the main drummer for the march of BRICS, India appears unstoppable at the moment. Europe should regain its voice — or voices — sooner or later.

Southeast Asia is in fact a place to watch closely. It will have many de facto middle powers, and Asean promises to be the vehicle that enhances possibilities for all its member states.

Indeed, region-building should matter a lot to Malaysia, mainly because its nation-building is also in a cul-de-sac. It needs some balloons to fly out of the dead end its neglect of federalism and regionalism has steered it into.

Source: Theedgemarkets

The EUR/JPY cross loses ground to around 156.65 during the early European session on Tuesday. The rising speculation that the Bank of Japan (BoJ) will hike interest rates further supports the Japanese Yen (JPY). Later on Tuesday, the German Gross Domestic Product (GDP) for the fourth quarter (Q4) will be released. 

Japan's Services Producer Pricing Index (PPI) released earlier on Tuesday, supports the case of BoJ rate hike. This comes on top of Japan's robust consumer inflation numbers, reaffirming the prospect that the BoJ would raise interest rates further, which continues to support the JPY.

On the Euro front, the conservative alliance made up of the Christian Democratic Union (CDU) and its allies the Christian Social Union (CSU) is set to lead Germany again following the federal election on Sunday. Investors will closely monitor how soon the conservative Christian Democrats could form a coalition government to offer much-needed reform to a struggling economy.

Meanwhile, the dovish stance of the European Central Bank (ECB) could drag the Euro (EUR) lower.  The ECB policymaker Francois Villeroy de Galhau suggested the ECB could lower its deposit rate to 2% by summer, per Reuters.

Source: FXSTREET

Dollar gained slightly overnight, buoyed by mild risk aversion and ongoing tariff threats from President Donald Trump. However, the lack of follow-through momentum in the greenback suggests traders remain hesitant to commit to large directional bets amid persistent policy uncertainty.

US stock market weakness has been most pronounced in the NASDAQ, which fell by more than -1%. Some of this pullback appears related to profit taking ahead of Nvidia’s quarterly results, due on Wednesday. There are concerned about lower demand for AI technology if China’s low-cost DeepSeek gains traction, posing competition to the industry’s current frontrunners.

Adding to the cautious tone, Trump doubled down on his plan to impose 25% tariffs on Mexico and Canada, stating the levies are “on time, on schedule” for March 4, following a one-month delay. However, markets have been reluctant to react too strongly, given Trump’s history of sudden policy reversals, which adds to the uncertainty surrounding trade relations.

In currency markets, Euro is currently the strongest performer for the week, followed by Swiss Franc and then Dollar. Meanwhile, Loonie is the worst so far, trailed by Yen and Kiwi. Aussie and Sterling are trading in the middle of the pack. Looking ahead, US consumer confidence data could provide the next directional cue for the market.

USD/CAD stands out as a pair to watch, especially under the looming tariff threat. Technically, the fall from 1.4791 (considered a correction to the rally from 1.3418) is in favor to continue as long as 1.4378 resistance holds. Break below 1.4150 would open the way to 1.3946 cluster support ( 61.8% retracement of 1.3418 to 1.4791 at 1.3942).

However, firm break above 1.4378 would suggest the pullback has ended, paving the way for a stronger rebound to retest 1.4791 high.

In Asia, at the time of writing, Nikkei is down -1.34%. Hong Kong HSI is down -0.62%. China Shanghai SSE is down -0.14%. Singapore Strait Times is down -0.11%. Overnight, DOW rose 0.08%. S&P 500 fell -0.50%. NASDAQ fell -1.21%. 10-year yield fell -0.027 to 4.393.

Fed’s Goolsbee: Rate cuts on hold until policy uncertainty clears

Chicago Fed President Austan Goolsbee emphasized the need for caution before resuming rate cuts, citing uncertainty over the economic impact of the Trump administration’s policies.

Speaking in a TV interview overnight, Goolsbee stated that Fed remains in “wait-and-see” mode as it assesses the effects of new tariffs, immigration policies, tax cuts, government spending reductions, and federal workforce changes.

Goolsbee made it clear that if the administration’s policies push inflation higher, Fed is obligated by law to respond accordingly. However, he stressed that the overall policy package remains unclear, making it difficult for Fed to determine its next steps.

“There’s a lot of uncertainty, a lot of kind of dust in the air, and before the Fed can go back to cutting the rates, I feel and have expressed that we got to get a little dust out of the air,” he said.

BoE’s Dhingra reaffirms dovish stance, signals concern over weak consumption

BoE MPC member Swati Dhingra, one of the most dovish voices on the committee, reinforced her call for faster rate cuts. She argued that policy remains overly restrictive despite ongoing disinflation.

Dhingra, who voted for a 50bps rate cut earlier this month, pushed back against the common interpretation that gradual easing cycle means 25bps cuts per quarter, stating that “that’s not actually what the committee has said. That’s not my definition, clearly.” She emphasized that even under the assumption of quarterly 25bps cuts, monetary policy would still be “in restrictive territory all of this year”.

Her primary concern remains the persistent weakness in consumer spending, stating that “consumption remains pretty weak, so we’re not seeing that resurgence of inflationary pressures.” She also noted that the slow recovery in demand justifies a more accommodative stance, as “we basically aren’t recovering fully.”

Despite concerns about potential inflationary pressures in certain items, Dhingra maintained that the disinflation process remains intact. She believes the key takeaway is that monetary policy is still restrictive, and reducing the level of restraint would not necessarily derail inflation’s downward trend.

Her remarks highlight a clear divide within the MPC, where some members advocate patience, while doves like Dhingra and Catherine Mann argue that rate cuts should come sooner and in larger increments.

Looking ahead

Germany GDP final will be released in European session. Later in the day, US consumer confidence will be the main focus, and house price index will be published too.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6331; (P) 0.6362; (R1) 0.6379; More...

AUD/USD is staying in tight range above 0.6327 support and intraday bias stays neutral. On the downside, firm break of 0.6327 will suggest that the corrective rebound from 0.6087 has completed ahead of 38.2% retracement of 0.6941 to 0.6087 at 0.6413. Intraday bias will be turned back to the downside for retesting 0.6087 low. Nevertheless, sustained break of 0.6413 will pave the way back to 61.8% retracement at 0.6615, even still as a correction.

In the bigger picture, fall from 0.6941 (2024 high) is seen as part of the down trend from 0.8006 (2021 high). Next medium term target is 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.6505) holds.

Economic Indicators Update

Source: ACTIONFOREX