NZD/USD attracts some sellers below 0.5650, Trump’s tariff policies in focus
- NZD/USD remains under selling pressure around 0.5645, down 0.53% on the day.
- Trump said he is thinking in terms of 25% tariffs on Mexico and Canada next week.
- New Zealand’s PSI declined to 47.9 in December vs. 49.5 prior.
The NZD/USD pair slumps to around 0.5645 during the Asian trading hours on Tuesday. The US Dollar (USD) rebounds after US President Donald Trump said that he intends to impose 25% tariffs on Canada and Mexico on February 1.
Trump stated on Monday that tariffs could be levied against Mexico and Canada as soon as early February, per CNBC. “We’re thinking in terms of 25% (levies) on Mexico and Canada because they’re allowing cast number of people” over the border, Trump said. The Greenback recovers some lost ground following this report.
Meanwhile, the US dollar Index (DXY), a measure of the USD's value relative to its most significant trading partners' currencies, bounced off the two-week low and edges higher above 108.50, gaining 0.40% on the day.
Investors will closely monitor the development surrounding tariff policies, as Trump had also threatened China with tariffs of up to 60% in December. If he imposes any tariffs on China, this could weigh on the Kiwi, as China is a major trading partner to New Zealand.
Data released by Business NZ on Tuesday showed that New Zealand’s Performance of Services Index (PSI) eased to 47.9 in December from 49.5 in November. This figure has now been in contraction for ten consecutive months. The downbeat report contributes to the New Zealand Dollar’s (NZD) downside.
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.