- A combination of supporting factors pushes NZD/USD higher for the second straight day.
- A positive risk tone and Fed rate cut bets undermine the USD, lending support to the pair.
- The upside seems limited as traders keenly await Trump’s reciprocal tariffs announcement.
The NZD/USD pair gains strong follow-through positive traction for the second straight day and climbs to a fresh weekly high, around the 0.5720-0.5725 region during the Asian session on Wednesday.
A generally positive tone around the equity markets, along with the optimism over China's economy, turns out to be key factors benefiting antipodean currencies, including the New Zealand Dollar (NZD). Data released on Tuesday showed that China’s manufacturing activity expanded at its fastest pace in a year during March. This comes on top of China's better-than-expected official PMIs on Monday and the recent stimulus measures to prop up economic recovery, which, along with subdued US Dollar (USD) price action, act as a tailwind for the NZD/USD pair.
Investors now seem convinced that a tariff-driven slowdown in US economic growth might force the Federal Reserve (Fed) to resume its rate-cutting cycle soon and are pricing in the possibility of 80-basis-points rate cuts by the end of this year. Apart from this, a stable performance around the Asian equity markets fails to assist the safe-haven USD to attract any meaningful buyers. That said, concerns over US President Donald Trump's planned reciprocal tariffs announcement on Wednesday might hold back traders from placing bullish bets around the export-reliant NZD.
Furthermore, expectations that the Reserve Bank of New Zealand (RBNZ) would lower borrowing costs at least two times by the year-end might contribute to capping the NZD/USD pair. Adding to this, Monday's breakdown below a one-week-old trading range warrants some caution before positioning for any further gains. Traders now look forward to the release of the US ADP report on private-sector employment for some impetus later during the early North American session, though the focus will remain glued to Trump's so-called reciprocal tariffs announcement.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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