NZD/USD weakens below 0.5700 on RBNZ’s dovish stance
- NZD/USD softens to around 0.5695 in Thursday’s Asian session.
- China’s central bank kept benchmark lending rates steady.
- Trump tariff threats could lift the US dollar and create a headwind for NZD/USD.
The NZD/USD pair trades on a negative note around 0.5695 during the Asian trading hours on Thursday. Traders brace for the US weekly Initial Jobless Claims, the CB Leading Economic Index and the Philly Fed Manufacturing Index reports, which are due later on Thursday.
On Thursday, the People’s Bank of China (PBOC) held the 1-year Loan Prime Rate (LPR) unchanged at 3.1% and the 5-year LPR at 3.6%. The Chinese authorities prioritize financial stability over interest rate easing to bolster the economy.
The Kiwi remains under selling pressure on the dovish stance of the Reserve Bank of New Zealand (RBNZ). The RBNZ cut its benchmark rate by 50 basis points (bps) to 3.75% at its February meeting on Wednesday. The central bank signaled further reductions in borrowing costs amid moderating inflation as policymakers sought to boost a struggling economy.
Meanwhile, the fresh US President Donald Trump tariff threats could boost the safe-haven flows, benefiting the Greenback in the near term. Since the inauguration last month, Trump has imposed a 10% tariff on all imports from China, on top of existing tariffs of up to 25%. Late Tuesday, Trump said that he would likely impose tariffs of around 25% on foreign cars, while semiconductor chips and drugs are set to face higher duties.
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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