NZD/USD trades above 0.5650 after paring recent losses
- NZD/USD experiences a technical upward correction despite increased risk aversion.
- The NZD faced challenges as China's retaliatory tariffs on certain US exports have come into effect.
- The US Dollar received support from the rising cautious mood surrounding the Fed’s policy outlook.
NZD/USD trims its recent losses, trading around 0.5660 during the early European hours on Monday. However, the pair could face challenges again amid escalating trade war concerns. US President Donald Trump told reporters aboard Air Force One that he plans to impose a 25% tariff on all steel and aluminum imports without specifying the affected countries.
President Trump also stated that additional reciprocal tariffs would be unveiled by midweek, set to take effect almost immediately, matching the tariff rates imposed by each country, according to Reuters.
The New Zealand Dollar also weakened amid growing concerns over the US-China trade war, given New Zealand's close economic ties with China. A new US levy on Chinese imports took effect last week, while China's retaliatory tariffs on certain US exports began this Monday.
The US Dollar Index (DXY), which measures the US Dollar’s value against six major currencies, maintains its position above 108.00 at the time of writing. The Greenback receives support as the US Federal Reserve (Fed) is now expected to keep interest rates steady this year, following January’s jobs report released on Friday, which indicated slowing job growth but a lower Unemployment Rate.
Federal Reserve (Fed) Bank of Chicago President Austan Goolsbee mentioned on Friday that inconsistent policy approaches from the US government cause a high level of economic uncertainty that makes it difficult for the Fed to draw a bead on where the economy, and inflation specifically, are likely heading.
Meanwhile, Fed Board of Governors member Adriana Kugler noted that US growth and economic activity remain healthy overall, but noted that progress toward the Fed's inflation goals has been somewhat lopsided, per Reuters.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.