NZD/USD softens below 0.5750 amid trade war concerns
- NZD/USD loses ground to around 0.5730 in Thursday’s early Asian session.
- Economists expect the RBNZ to further cut rates despite the upbeat GDP data.
- Trump will place 25% tariffs on auto imports.
The NZD/USD pair edges lower to around 0.5730 during the early Asian session on Thursday. The fears of a global trade war ahead of US plans to unveil next week a swath of reciprocal tariffs and the rising expectation of the Reserve Bank of New Zealand (RBNZ) rate cut weigh on the Kiwi.
Economists expect the RBNZ to deliver further cuts to the Official Cash Rate at each of the next meetings despite GDP figures last week surprising to the upside. This, in turn, might weigh on the New Zealand Dollar (NZD) against the USD. "And so we don’t expect that this [GDP] upside surprise will have much impact on the near-term policy outlook, i.e., we continue to expect a 25bp cut in the OCR at the April and May meetings,” said Westpac senior economist Darren Gibbs.
US President Donald Trump said late Wednesday that he will impose a 25% tariff on auto imports, widening the global trade war. Trump said the tariffs would go into effect on April 2 and that the US would start to collect them a day later. Trump added that tariffs will likely be more “lenient than reciprocal,” as the April 2 tariff deadline looms for a number of levies to go into effect. However, the uncertainty and unpredictability of Trump tariff policies raise concerns over the economic slowdown in the US, which could undermine the Greenback.
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.