NZD/USD extends its winning streak from April 9, trading near the 0.6000 level during early European hours on Tuesday. The pair continues to gain as the US Dollar (USD) weakens under the weight of growing economic and political uncertainty in the United States.
Investor sentiment remains fragile, shaken by the prolonged deadlock in global trade negotiations, particularly as China pushes back against President Trump's tariff measures. Market concerns deepened after Trump proposed an investigation into critical mineral imports, stoking fears of slower US economic growth and rising inflation.
Adding to the unease, Trump’s renewed criticism of Federal Reserve (Fed) Chair Jerome Powell has reignited concerns over the Fed’s independence. White House economic advisor Kevin Hassett disclosed that Trump is exploring whether he has the authority to remove Powell. In a Truth Social post, Trump warned that without swift rate cuts from the Fed, the US economy could face a significant slowdown.
Investor confidence also took a hit as the White House escalated trade tensions further, imposing tariffs on Chinese ships docking at US ports, risking disruptions to global shipping routes. China, a key trading partner for New Zealand, has shown no signs of backing down, maintaining a firm stance in the ongoing trade spat.
Despite recent gains, the NZD may encounter headwinds ahead. Markets are still fully pricing in a 25 basis point rate cut by the Reserve Bank of New Zealand (RBNZ) in May, with expectations for the Official Cash Rate to fall from 3.5% to 2.75% by year-end.
On the economic front, New Zealand’s March trade data showed a robust performance, with exports rising 19% year-on-year and imports climbing 12%. This resulted in a trade surplus of NZD 970 million—the highest since the onset of the pandemic in 2020.
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.