NZD/USD weakens below 0.5700 on weaker Chinese PMI data, Trump tariff uncertainty
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- NZD/USD softens to around 0.5685 in Monday’s Asian session.
- The weaker Chinese PMI data and uncertainty surrounding Trump’s tariff policies weigh on the New Zealand Dollar.
- The Fed will likely keep interest rates on hold at its January meeting on Wednesday.
The NZD/USD pair remains under selling pressure near 0.5685 during the Asian trading hours on Monday. The New Zealand Dollar (NZD) weakens amid weaker Chinese economic data and uncertainty over US President Donald Trump’s tariff measures. Traders await the US Federal Reserve (Fed) interest rate decision scheduled for Wednesday.
Data released by the China Federation of Logistics and Purchasing (CFLP) on Monday showed that the country’s Manufacturing Purchasing Managers Index (PMI) eased to 49.1 in January from 50.1 in December, weaker than expected. Additionally, the Non-Manufacturing PMI declined to 50.2 in January from the previous reading of 52.2. The Kiwi remains weak in an immediate reaction to the downbeat Chinese PMI reports.
Investors will closely monitor the development surrounding Trump’s tariff policies on China, as China is a major trading partner for New Zealand. Last week, Trump signaled that the nation could reach a deal with China without using tariffs.
The softer New Zealand's Consumer Price Index (CPI) inflation data for the fourth quarter of 2024 raised the bets that the Reserve Bank of New Zealand (RBNZ) will deliver further rate cuts, which might weigh on the Kiwi. Swaps markets are now pricing in nearly 90% odds of another 50 basis points (bps) reduction on February 19, adding to the two delivered earlier in the cycle. The New Zealand central bank is anticipated to deliver a total of 100 bps of rate cuts for the remainder of 2025.
On the other hand, the Fed is expected to keep interest rates on hold at its January meeting on Wednesday, but market players will keep an eye on the US rate path this year, especially after Trump demanded the Fed continue lowering borrowing costs. With so much uncertainty, "we expect (the Fed) to retain maximal optionality" to resume cuts in March or continue a pause, said Bank of America analyst Mark Cabana
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.
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