NZD/USD attracts some sellers below 0.5650 on tariff concerns
- NZD/USD faces some selling pressure to around 0.5620 in Friday’s early Asian session, down 0.20% on the day.
- Trump vowed March 4 tariffs for Mexico, Canada and an extra 10% for China over fentanyl.
- The US economy grew at a 2.3% annualized pace in Q4, matching estimates.
The NZD/USD pair extends its decline to near 0.5625 during the early Asian session on Friday. The concerns about US President Donald Trump’s tariffs exert some selling pressure on the New Zealand Dollar (NZD). Later on Friday, the US Personal Consumption Expenditures (PCE) Price Index data for January will be in the spotlight.
Trump on Thursday said his proposed 25% tariffs on Mexican and Canadian goods will take effect on March 4, along with an additional 10% duty on Chinese imports because deadly drugs are still pouring into the US from those countries.
Trump added the new tariffs on Chinese goods will be added to the 10% tariffs he imposed on February 4 in response to the fentanyl opioid epidemic, resulting in a cumulative 20% tariff. Any signs of renewed US tariff threats could drag the China-proxy Kiwi lower as China is a major trading partner to New Zealand.
The US Bureau of Economic Analysis (BEA) revealed on Thursday that the US Gross Domestic Product (GDP) expanded at an annual rate of 2.3% in the fourth quarter. This figure matched the initial estimate and came in line with the market expectation.
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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