NZD/USD faces some selling pressure below 0.5700 as Trump tariff threat looms
- NZD/USD weakens to near 0.5670 in Tuesday’s early Asian session, down 0.38% on the day.
- Trump said that he will place tariffs on imports of computer chips, pharmaceuticals, steel, aluminum, and copper.
- The downbeat Chinese PMI data and RBNZ dovish bets continue to undermine the Kiwi.
The NZD/USD pair attracts some sellers to around 0.5670 during the early Asian session on Tuesday. The US Dollar (USD) gains traction due to US President Donald Trump's tariff threats. Later on Tuesday, the US Durable Goods Orders, the Conference Board’s Consumer Confidence, and the Richmond Fed Manufacturing Index will be released.
Late Monday, Trump said that he will impose tariffs on imports of computer chips, pharmaceuticals, steel, aluminum, and copper. The purpose is to bring production to the United States, boosting domestic manufacturing. Additionally, Scott Bessent, Trump’s Treasury secretary, said that he wanted to push new universal tariffs on US imports to start at 2.5%. The levies could be pushed up to as high as 20%, in line with Trump’s maximalist position on the campaign trail last year. The Greenback strengthens following this headline and creates a headwind for the pair.
The US Federal Reserve (Fed) interest rate decision will take center stage on Wednesday. The US central bank will likely pause cutting rates after reducing them by a total of 100 basis points (bps) since July 2024. Traders will closely watch the press conference as it might offer some hints about the US interest rate path.
“While inflation concerns have significantly abated, they still remain. As a result, it is quite possible that there will be fewer rate cuts over the course of next year than anticipated only a few months ago,” said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion.
The disappointed Chinese economic data and dovish expectation of the Reserve Bank of New Zealand (RBNZ) could weigh on the New Zealand Dollar (NZD). Swaps markets are now pricing in nearly 90% chance of another 50 bps reduction on February 19, adding to the two delivered earlier in the cycle. The New Zealand central bank is anticipated to deliver a total of 100 bps of rate cuts for the remainder of 2025.
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.