NZD/USD remains subdued below 0.5750 amid a downbeat market sentiment
- NZD/USD declines amid sour market sentiment after Trump announces to proceed with tariffs on Canada and Mexico.
- Chicago Fed President Austan Goolsbee stated that the US central bank requires more clarity before contemplating interest rate cuts.
- The PBOC injected CNY300 billion through the one-year Medium-term Lending Facility (MLF), keeping the rate steady at 2%.
The NZD/USD pair continues its losing streak for the third consecutive day, trading around 0.5730 during Asian hours on Tuesday. This depreciation comes amid a downbeat market sentiment following US President Donald Trump’s announcement to proceed with tariffs on Canada and Mexico.
Late Monday, President Trump stated that sweeping US tariffs on imports from Canada and Mexico “will go forward” when the month-long delay on their implementation ends next week. He claimed that the United States (US) has “been taken advantage of” by foreign nations and reiterated his plan to impose so-called reciprocal tariffs.
The US Dollar (USD) has faced challenges due to disappointing US economic data, including Jobless Claims and the S&P Global Purchasing Managers' Index (PMI) released last week. Adding to the uncertainty, Federal Reserve Bank of Chicago President Austan Goolsbee remarked on Monday that the US central bank needs greater clarity before considering interest rate cuts.
In China, the People’s Bank of China (PBOC) injected CNY300 billion on Tuesday via the one-year Medium-term Lending Facility (MLF), maintaining the rate at 2%. Additionally, the PBOC injected CNY318.5 billion through seven-day reverse repos at 1.50%, consistent with the prior rate. Given the close trade relationship between China and New Zealand, any shifts in the Chinese economy could impact the New Zealand Dollar (NZD).
However, the downside of the NZD/USD pair could be limited as the New Zealand Dollar may have found support from China’s release of its annual policy statement for 2025 on Sunday. The statement outlines strategies to advance rural reforms and promote comprehensive rural revitalization. Furthermore, China’s state-backed developers are increasing land purchases at premium prices, spurred by the government’s relaxation of home price restrictions to revive the struggling property market.
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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