NZD/USD rises above 0.5550 on rising hope of de-escalation in global trade tensions
- NZD/USD ticks up as Trump’s comments fuel hopes of easing trade tensions.
- The NZD could encounter pressure as new US tariffs come into force, including a hefty 104% duty on Chinese imports.
- The CME FedWatch Tool suggests that markets are fully pricing in a Fed’s 25-basis-point rate cut as early as May.
The NZD/USD pair is stabilizing near 0.5560 during Wednesday’s European session after three consecutive days of losses. The recovery was supported by comments from US President Donald Trump, who expressed openness to trade negotiations, fueling optimism for a potential de-escalation in global trade tensions.
However, further upside may be limited as the New Zealand Dollar (NZD) remains under pressure amid heightened market volatility. New US tariffs, including a significant 104% duty on Chinese imports, New Zealand’s close trading partner, took effect on Wednesday. Although the White House has signaled a willingness to engage in talks, China’s strong response—vowing to “fight to the end”—suggests that the trade conflict could persist.
Meanwhile, the Reserve Bank of New Zealand (RBNZ) cut its benchmark interest rate by 25 basis points (bps), aligning with expectations. The move reflects growing concerns over weakening inflation, slowing economic growth, and early signs of labor market softness. Speculation is building that prolonged trade tensions could push the RBNZ toward a deeper 50 bps cut, with markets factoring in the possibility of up to 100 bps in further easing by 2025.
In the United States (US), Chicago Fed President Austan Goolsbee reiterated the central bank's commitment to a data-dependent policy approach. According to the CME FedWatch Tool, markets are increasingly pricing in a 25 bps rate cut by the Federal Reserve (Fed) as soon as May, though July remains the base case. By year-end, traders expect more than 100 bps in cumulative cuts.
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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