NZD/USD extends downside below 0.5750 as US tariffs loom
- NZD/USD weakens to near 0.5725 in Tuesday’s early Asian session.
- Trump’s tariff policies and expectations of further RBNZ rate cuts continue to undermine the Kiwi.
- China’s stimulus measures might cap the downside for the pair.
The NZD/USD pair extends the decline to around 0.5725 during the early Asian session on Tuesday. The New Zealand Dollar (NZD) softens to a one-week low amid concerns over the looming April 2 deadline for US reciprocal tariffs.
Trump said late Monday that he will announce tariffs on automobile imports in the coming days and indicated that some countries will receive breaks from reciprocal tariffs on April 2. Trump signaled there could be "flexibility" in the tariff plans and some trading partners would receive possible exemptions or reductions. However, the confusion about Trump's plans for the tariff announcement scheduled for April 2 could weigh on the Kiwi against the US Dollar (USD).
Economists expect the Reserve Bank of New Zealand (RBNZ) to deliver further rate cuts to the Official Cash Rate (OCR) at each of the next meetings despite the GDP report last week surprising to the upside. "So far, the inflation outlook remains comfortable for the RBNZ. Two 25bp cuts over April and May remain highly certain,” said ASB chief economist Nick Tuffley.
Meanwhile, a fresh Chinese stimulus measure might help limit the NZD’s losses, given China’s key role as New Zealand’s major trading partner. The ruling Chinese Communist Party’s (CCP) central committee and state council announced ambitious plans to “vigorously boost consumption” by putting up pay and reducing financial burdens in its latest attempt to increase consumer confidence and lift its struggling economy.
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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