NZD/USD remains capped below 0.6000 on escalating US-china trade tensions
- NZD/USD trades softer to around 0.5995 in Tuesday’s Asian session.
- China warned nations against appeasing the US in trade deals.
- Trump said the US economy could slow down unless interest rates fall immediately.
The NZD/USD pair softens to near 0.5995 during the Asian trading hours on Tuesday. The New Zealand Dollar (NZD) edges lower against the US Dollar amid the escalating trade war tensions between the US and China. However, the downside for the pair might be limited as traders are concerned about the Federal Reserve’s (Fed) independence under the Trump administration.
China warned that it will hit back at the nations that make deals with the US that hurt Beijing's interests, as the trade war between the US and China threatens to drag in other nations. "China firmly opposes any party reaching a deal at the expense of China's interests. If this happens, China will never accept it and will resolutely take countermeasures,” said a Chinese Commerce Ministry spokesperson.
The comments came after reports that the US plans to pressure governments to restrict trade with China in exchange for exemptions to US tariffs. The rising trade tensions between the world's two biggest economies weigh on the China-proxy Kiwi, as China is New Zealand's largest trading partner.
Despite the surge in inflation, money markets have fully priced in a rate hike at the May meeting. The RBNZ cut rates by a quarter-point earlier this month, lowering its Official Cash Rate (OCR) to 3.5%, the lowest level since October 2022. The New Zealand central bank is expected to remain aggressive and continue cutting rates to boost the New Zealand economy. This, in turn, might contribute to the NZD’s downside.
Nonetheless, the concerns over the Fed's independence could drag the Greenback lower and cap the downside for the pair. US President Donald Trump repeated his criticism of Fed’s Powell, saying that the US economy could slow down unless interest rates are lowered immediately.
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.