- NZD/USD weakens to around 0.5720 in Friday’s early Asian session, down 0.32% on the day.
- Persistent trade war concerns weigh on the New Zealand Dollar.
- Investors await the US February PCE inflation data on Friday for fresh impetus.
The NZD/USD pair remains under selling pressure near 0.5720 during the early Asian session on Friday. The escalating trade war risks from US President Donald Trump exert some selling pressure on the Kiwi. The US February Personal Consumption Expenditures (PCE) data will take center stage later on Friday.
Traders remain nervous ahead of Trump’s reciprocal tariffs announcement on April 2. Trump said that tariffs will likely be more “lenient than reciprocal,” as next week's tariff deadline looms for a number of levies to go into effect. However, the uncertainty surrounding his trade policy might drag the New Zealand Dollar (NZD) against the US Dollar (USD).
Investors brace for the US PCE inflation data due on Friday for some hints about the trajectory for further rate cuts, after the Federal Reserve's (Fed) decision last week to hold its benchmark interest rate steady. Any signs of cooler inflation could weigh on the Greenback and help limit the pair’s losses.
Furthermore, the positive developments surrounding China’s stimulus measures could boost the NZD, as China is a major trading partner of New Zealand. China’s Vice Premier Ding stated that the official will implement more proactive macroeconomic policies this year while fostering the private sector and encouraging foreign investment.
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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