NZD/USD posts modest gains above 0.5650, US CPI data looms
- NZD/USD trades in positive territory near 0.5655 in Wednesday’s early Asian session.
- Fed's Powell said the central bank is in no rush to cut rates again.
- Traders will closely watch the development around potential tariff policies.
The NZD/USD pair trades with mild gains around 0.5655 during the early Asian session on Wednesday. The New Zealand Dollar (NZD) trades firmer as tariff concerns ease. However, investors will closely monitor the developments surrounding potential tariff policies. Later on Wednesday, the US Consumer Price Index (CPI) inflation will be in the spotlight.
Federal Reserve (Fed) Chair Jerome Powell highlighted that the Fed officials do not need to be in a hurry to adjust the monetary policy in his prepared remarks for delivery on the first day of his testimony on the semi-annual Monetary Policy Report before the Senate Banking Committee. "We can maintain policy restraint for longer if the economy remains strong and inflation does not move toward 2%,” said Powell. Nonetheless, these remarks failed to boost the Greenback as it was largely expected by traders.
US President Donald Trump on Monday imposed a 25% tariff on all steel and aluminum imports into the United States (US) with no exceptions or exemptions. Last week, Trump levied a 10% import tax on Chinese goods, threatening an economic slowdown in China, New Zealand’s major trading partner. Investors awaited more concrete information regarding further trade tariffs by the Trump administration. Any signs of escalating trade war tensions could drag the Kiwi lower against the USD.
"What we're seeing now is that those headlines and those announcements are not necessarily an indication that these tariffs are actually going to be levied, at least not at the time that we think that they might be. So, everyone is just in a wait and see mode,” said Helen Given, FX trader at Monex USA in Washington.
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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