NZD/USD holds positive ground above 0.5750 amid US-China trade war worries
- NZD/USD gains ground to around 0.5770 in Friday’s Asian session.
- The Trump administration hit China with new tariffs of 145%.
- RBNZ retains considerable room to cut interest rates further.
The NZD/USD pair holds positive ground near 0.5770 after reaching the daily high of 0.5800 during the Asian trading hours on Friday. The uptick of the pair is bolstered by broad US Dollar (USD) weakness amid persistent economic concerns due to escalating tariff tensions.
On Wednesday, Trump reversed course as he announced a 90-day pause on tariffs for all countries except China. Trump said early Thursday that China faced a tariff rate of 145%, clarifying that China also faced a 20% pre-existing levy over fentanyl. Concerns over Trump’s threat of tariffs that have stoked fears of a global recession and trade wars undermine the Greenback and act as a tailwind for the pair.
On the Kiwi front, the Reserve Bank of New Zealand (RBNZ) cut its benchmark interest rate by 25 basis points (bps) at its April meeting on Wednesday amid a steady decline in inflation and weakening domestic economic conditions. Analysts anticipate the RBNZ to deliver a deeper 50 bps cut, with markets factoring in the possibility of up to 100 bps in further easing by 2025. This, in turn, might cap the upside for the New Zealand Dollar (NZD) in the near term.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.