NZD/USD softens below 0.6000, eyes on US-China trade tensions
- NZD/USD loses ground to around 0.5985 in Friday’s Asian session.
- China told the US to cancel all unilateral tariffs if it wants talks.
- China's Finance Ministry said current world economic growth momentum was insufficient due to tariff threats and trade wars.
The NZD/USD pair edges lower to around 0.5985 during the Asian session on Friday, pressured by the firmer Greenback. The lack of progress toward defusing the US-China trade deal exerts some selling pressure on the China-proxy Kiwi. The final reading of Michigan Consumer Sentiment is due later on Friday.
US President Donald Trump said late Thursday that his administration was talking with China on trade. Meanwhile, China said that no negotiations had been held on the economy and trade, and it urged the US to lift all unilateral tariff measures if it really wished to resolve the issue. Concerns over trade tensions between the world’s two largest economies could undermine the New Zealand Dollar (NZD), as China is a major trading partner to New Zealand.
The rising bets that the Reserve Bank of New Zealand (RBNZ) will lower its Official Cash Rate (OCR) at the May meeting might contribute to the NZD’s downside. The markets fully expect the RBNZ to cut its 3.5% OCR by 25 basis points (bps) in May, with a further reduction to 2.75% by year-end.
China's Finance Ministry said on Friday that the current world economic growth momentum was insufficient, with tariff and trade wars further impacting economic and financial stability. Meanwhile, People's Bank of China (PBOC) Governor Pan Gongsheng noted that economic fragmentation and trade tensions continue to disrupt the industrial supply chain and weaken the momentum of global growth. However, any positive developments surrounding Chinese stimulus measures could help limit the Kiwi’s losses in the near term.
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.