- NZD/USD jumps to near 0.6000 as the US Dollar turns upside down in the aftermath of the US court’s ban on Trump’s tariff agenda.
- The US court accused Trump of abusing the law of national emergency.
- The RBNZ has signaled that there will be more interest rate cuts than what they had anticipated.
The NZD/USD pair advances to near 0.5990 during North American trading hours on Thursday after recovering initial losses. The Kiwi pair gains as the US Dollar (USD) turns upside down in the aftermath of the permanent injunction of the tariff policy imposed by United States (US) President Donald Trump.
On Wednesday, the US Court of International Trade accused Donald Trump of abusing the 1977 International Emergency Economic Powers Act to justify his tariff agenda. The court blamed Trump for claiming extra power to impose tariffs such as reciprocal, fentanyl, and border negligence without the Congressional vote under the cover of “national emergency”.
Therefore, the court has ordered the administration to dissolve tariffs imposed within 10 days, to which the White House has appealed, according to a report from the Associated Press (AP).
The event came in as positive for the US Dollar Index (DXY), which rallied almost 1% to near 100.50. However, it gives back initial gains and slides to near 99.50. The USD Index weakens as investors reassess the likely consequences of the US court banning Trump tariffs. Market experts believe that this will dampen business confidence and force owners to redesign their manufacturing and procurement plans.
Though the New Zealand Dollar (NZD) outperforms the US Dollar, its outlook is uncertain as the Reserve Bank of New Zealand (RBNZ) has signaled a deeper monetary policy expansion cycle.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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