The US dollar (USD) is facing downward pressure driven by a combination of new tariffs, a stalled federal budget, and disappointing economic data, creating opportunities for forex traders.
President Donald Trump’s recent 50% tariff on steel and aluminum imports, coupled with faltering US-China trade talks, has intensified economic uncertainty, weakening the USD.
A weak ISM Manufacturing Index, dropping to 48.1 in May from 49.2, signals contraction, further pressuring the greenback. Meanwhile, safe-haven assets like silver and gold have surged, with silver hitting $32.50 per ounce and gold nearing $3,400. Traders are eyeing currency pairs like NZD/USD for potential gains, awaiting a technical retracement to align with the bullish trend.
Tariffs and Budget Strain USD
The USD’s decline is fueled by multiple headwinds. The Trump administration’s 50% steel tariff, announced last Friday, has raised fears of retaliatory trade measures, particularly after accusations of China violating tariff rollback agreements. Additionally, a proposed US budget, currently stalled in Congress, could add $4 trillion to the national debt, spooking investors.
Real-time market data shows the US Dollar Index (DXY) falling 1.2% this week to 103.45, reflecting broad weakness. This environment has boosted safe-haven assets, with silver surging 4.8% to a resistance level near $32.50 and gold climbing to $3,392, reinforcing their appeal amid geopolitical and economic turbulence.
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NZD/USD and Technical Trading Opportunities
The NZD/USD pair has capitalized on USD weakness, gaining 1.5% this week to trade at 0.6270, near a two-month high. Technical analysis indicates NZD/USD is approaching overbought territory, with the 14-day Relative Strength Index (RSI) at 68, suggesting a potential pullback to the trend channel near 0.6200 before resuming its uptrend.
Similar patterns are observed in AUD/USD, which rose to 0.6750, and WTI crude oil, which broke out of a descending triangle to $72.30 per barrel following a gap-up open on Monday. Traders are advised to monitor technical levels and news flow, particularly around US-China trade developments and Wednesday’s trade deal deadline, for signs of a USD reversal.
Did You Know?
The NZD, or “Kiwi,” is highly sensitive to global commodity prices, particularly dairy, which accounts for 30% of New Zealand’s exports, making NZD/USD a key pair during trade disruptions.
Market Outlook and Key Data Points
The USD’s trajectory hinges on upcoming economic releases and policy developments. The US JOLTS Job Openings data, due today at 10:00 AM EST, is projected to show 8.1 million openings for April, potentially supporting the Federal Reserve’s cautious stance on rate cuts if strong. However, ongoing trade tensions and budget uncertainties may cap USD recovery.
The “TACO trade” strategy, which anticipates a USD rebound on positive White House policy shifts, remains relevant. Meanwhile, safe-haven flows continue to bolster gold and silver, with analysts projecting that gold could test $3,500 if trade woes persist. Forex traders are positioning for NZD/USD gains, awaiting a technical correction to optimize entries.
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