NZD/USD jumps to near 0.5850 as the US Dollar takes a hard hit after Liberation Day
- NZD/USD jumps to near 0.5850 as the US Dollar takes a hard hit after Liberation Day.
- US President Trump announces 34% reciprocal tariffs on China, which are in addition to 20% import duties imposed in March.
- The US ISM Services PMI rose at a moderate pace in March to 50.8.
The NZD/USD pair advances swiftly to near 0.5850 in Thursday’s North American session. The Kiwi pair strengthens as the US Dollar (USD) takes a sharp dip after so-called “Liberation Day” on Wednesday when United States (US) President Donald Trump unveils reciprocal tariffs, alongwith a 10% baseline levy for all imports to the US.
Trump’s tariff announcement has weighed heavily on the US Dollar amid fears that higher import duties could lead the US economy to a recession. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, nosedives to near 101.30, the lowest level seen in six months.
US equity markets are facing a bloodbath in its opening session as investors expect the burden of higher tariffs will be borne by domestic importers. Such a scenario will increase the input cost for US companies, pointing to a sharp decline in their operating margins.
Meanwhile, fears of a US recession could force Federal Reserve (Fed) officials to revise their monetary policy stance. Till now, Fed policymakers had been guiding a restrictive monetary policy stance as they were significantly concerned over potential tariff-driven inflation.
On the economic data front, the US ISM Services PMI data for March has come in weaker than expected. The Services PMI came in significantly lower at 50.8 compared to estimates of 53.0 and the prior release of 53.5.
In the Asia-Pacific region, the outlook of the New Zealand (NZ) economy has dampened as Trump has announced a 34% import duty on imports from China. This will be in addition to the already imposed 20% tariffs, which were announced for pouring drugs into the US. However, China could escape 20% levies if it is ready to cut fentanyl exports in the economy, US Commerce Secretary Lutnick said during North American trading hours.
Fresh concerns over the Chinese economic outlook weighs on the New Zealand Dollar (NZD), given that the exports sector of the New Zealand (NZ) economy relies heavily on China.
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.