NZD/USD posts modest gains near 0.5650 on Trump tariff confusion
- NZD/USD trades with mild gains around 0.5640 in Tuesday’s early Asian session.
- The USD softens in choppy trade on Trump tariff confusion.
- The upbeat economic data and supportive measures from China could support the Kiwi in the near term.
The NZD/USD pair trades on a stronger note around 0.5640 during the early Asian session on Tuesday. The weakening of the US Dollar (USD) on confusion about President-elect Donald Trump’s tariff plans provides some support to the pair. The US ISM Services Purchasing Managers Index (PMI) for December is due later on Tuesday.
The Washington Post reported on Monday that Trump is considering a tariff plan that will narrow the focus to a select set of goods and services. However, Trump denied the report. "The market consensus is that Trump's bark will be worse than his bite, and any news that confirms that concept is fuel for rallying in risk assets and for a decline in the dollar and Treasury yields, but the reality here is that the downside risks remain and there's no clear endpoint for that," said Karl Schamotta, chief market strategist at Corpay in Toronto.
Nonetheless, the hawkish remarks from the US Federal Reserve (Fed) might lift the Greenback and act as a headwind for the pair. On Monday, Fed Governor Lisa Cook said that Fed policymakers could be more cautious with further rate cuts, citing labor market resilience and stickier inflation.
The encouraging Chinese economic data could boost the China-proxy Kiwi. China’s services activity expanded at the fastest pace in seven months in December, Caixin PMI showed on Monday. Additionally, the supportive measures from China might contribute to the NZD’s upside as China is a major trading partner for New Zealand.
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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