NZD/USD attracts some sellers below 0.5950 as US court blocks Trump's reciprocal tariffs
- NZD/USD loses ground to around 0.5935 in Thursday’s Asian session.
- The renewed trade tensions between the US and China, and a firmer US Dollar weigh on the pair.
- The preliminary reading of the US GDP data will take center stage later on Thursday.
The NZD/USD pair weakens to near 0.5935 during the early Asian trading hours on Thursday bolstered by a firmer US Dollar (USD). The renewed trade tensions between the United States (US) and China weigh on the China-proxy Kiwi.
US President Donald Trump's administration suspended some sales to China of critical US technologies, including those related to jet engines, semiconductors, and certain chemicals. This action is a response to China’s recent restrictions on exports of critical minerals to the US, a decision by Beijing that has threatened to cripple US company supply chains. Signs of escalating trade tensions between the world’s two largest economies exert some selling pressure on the NZD as China is a major trading partner of New Zealand.
On Wednesday, the Reserve Bank of New Zealand (RBNZ) cut its Official Cash Rate (OCR) by 25 basis points to 3.25%, as widely expected. However, the signal that the RBNZ might be nearer to an end of easing than some in the market had hoped for might help limit the Kiwi’s losses. Markets scaled back the possibility of an RBNZ rate cut at the next meeting in July to around 36%, from 60% previously.
On the Greenback’s front, Reuters reported early Thursday that a US federal court blocked US President Donald Trump's "Liberation Day" tariffs from going into effect. A federal trade court ruled Trump didn't have the authority to impose across-the-board duties on imports from nations that sell more to the US than they buy. The USD strengthens broadly following the report.
Traders will closely monitor the preliminary reading of the US Gross Domestic Product (GDP) report for the first quarter (Q1), which will be released later on Thursday. If the report shows weaker-than-expected outcomes, this could undermine the Greenback and act as a tailwind for the pair.
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.