- NZD/USD falls as the US Dollar gains strength, following China’s decision to exempt certain US imports from its 125% tariffs.
- US Agriculture Secretary Brooke Rollins noted that the Trump administration is holding daily discussions with China over tariff issues.
- The New Zealand Dollar remains under additional pressure amid growing signs of weakening demand from China.
The NZD/USD pair continues to weaken for the second consecutive session, trading near 0.5940 during Monday’s European session. The decline is largely driven by a strengthening US Dollar (USD) amid signs of easing tensions between the US and China.
China announced the exemption of certain US imports from its steep 125% tariffs on Friday, according to business sources. This development has sparked optimism that the prolonged trade dispute between the world's two largest economies could be nearing an end.
Additionally, US Agriculture Secretary Brooke Rollins stated on Sunday, as reported by Reuters, that the Trump administration is engaging in daily discussions with China regarding tariffs. Rollins also noted that negotiations with other trading partners were progressing and that several trade agreements were "very close" to completion.
Despite the positive sentiment, US Treasury yields remained muted on Monday, with the 2-year and 10-year notes yielding 3.75% and 4.24%, respectively, as investors await key economic data expected later this week to assess the initial effects of US President Donald Trump’s tariffs.
The New Zealand Dollar (NZD) also faces additional pressure amid signs of slowing demand from China. Reports indicate that some Chinese manufacturers are suspending production and seeking alternative markets in response to US tariffs, leading to reduced orders and impacting employment. Although not yet widespread, these disruptions could ultimately hurt New Zealand’s export sector, given China’s status as a major trading partner.
Moreover, the NZD remains under pressure as markets increasingly expect the Reserve Bank of New Zealand (RBNZ) to deliver additional monetary stimulus. A 25-basis-point rate cut is largely priced in for the RBNZ’s May meeting, with forecasts suggesting rates could bottom out at 2.75% by the end of the year.
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.
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