- NZD/USD softens to around 0.5730 in Thursday’s early Asian session.
- China will face a 54% tariff under the new Trump policy, weighing on the Kiwi.
- Traders raise their bets that the Fed will cut rates in June as Trump puts on new tariffs.
The NZD/USD pair faces some selling pressure to near 0.5730 during the early Asian session on Thursday. The New Zealand Dollar (NZD) weakens against the US Dollar (USD) after US President Donald Trump announced reciprocal tariffs that would escalate a trade war.
Trump said on Wednesday that he would impose a 10% baseline tariff on all imports to the United States (US) and higher duties on some of the country’s biggest trading partners. A White House official said Trump is slapping a 54% total tariff rate on imports from China, starting April 9.
Chinese imports had already been subject to a 20% tariff. An additional 34% in reciprocal tariffs will be imposed, according to the official. The potential trade war between the US and China and economic uncertainty could drag the China-proxy Kiwi lower, as China is a major trading partner to New Zealand.
On the other hand, traders raise their bets that the Federal Reserve (Fed) will start cutting interest rates in June and deliver a total of three quarter-point reductions by October, as Trump unveiled new tariffs on imports, which analysts expect could boost inflation but could also slow the economy.
According to the CME FedWatch tool, short-term interest-rate futures are now pricing in nearly a 70% odds of a Fed rate cut in the June meeting, up from about 60% before the tariffs were announced. This, in turn, could undermine the USD and create a tailwind for the pair.
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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