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4 Apr 2025
NZD/USD tumbles below 0.5750 amid US-China trade tensions, RBNZ rate cut bets
- NZD/USD attracts some sellers to around 0.5720 in Friday’s early European session, down 1.22% on the day.
- Potential US-China trade war and RBNZ rate cut bets weigh on the Kiwi.
- Investors will closely monitor the US NFP data, which is due later on Friday.
The NZD/USD pair falls to near 0.5720 during the early European session on Friday. The fears of an escalation of a trade war between the United States (US) and China exert some selling pressure on the China-proxy Kiwi. The highly-anticipated US Nonfarm Payrolls (NFP) for March will be released later on Friday.
The Reserve Bank of New Zealand (RBNZ) is expected to cut the interest rates by 25 basis points (bps) at its April meeting next week. The New Zealand central bank has cut rates by a cumulative 175 bps since August last year. UBS analysts suggested that the RBNZ would maintain a dovish stance throughout this cycle, and the central bank may consider a more aggressive 50 bps rate cut in its upcoming meeting. The rising bets of RBNZ rate reductions could weigh on the New Zealand Dollar (NZD) against the Greenback.
Additionally, US President Donald Trump would impose a 54% total tariff rate on imports from China, starting April 9. Chinese imports had already been subject to a 20% tariff. An additional 34% in reciprocal tariffs will be imposed, according to the official. The potential trade war between the world's two largest economies could drag the China-proxy Kiwi lower as China is a major trading partner to New Zealand.
The broader US Dollar weakness might help limit the NZD’s losses. The US March employment data is due on Friday, including Nonfarm Payrolls (NFP), Unemployment Rate and Average Hourly Earnings. In case of a weaker-than-expected outcome, this could undermine the Greenback and cap the downside for the pair. The Federal Reserve (Fed) Chair Jerome Powell, Michael Barr, and Christopher Waller are scheduled to speak later on the same day.
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.