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NZD/USD gains traction to near 0.5750, US-China trade talks in focus

  • NZD/USD gains ground around 0.5740 in Tuesday’s early Asian session. 
  • Trump on Friday said his proposed 100% tariffs on China would not be sustainable. 
  • The GOP-backed bill failed to pass the Senate for the 11th time on Monday. 

The NZD/USD pair attracts some buyers near 0.5740 during the early Asian session on Tuesday. Easing concerns over the US-China trade tensions provides some support to the China-proxy New Zealand Dollar (NZD) against the US Dollar (USD). Federal Reserve (Fed) Bank Governor Christopher Waller is scheduled to speak later on Tuesday. 

Data released by Statistics New Zealand on Tuesday showed that the country recorded a monthly trade deficit of NZD$1.355 billion in September, compared to a deficit of NZD$1.235 billion in the previous month. On an annual basis, the trade deficit narrowed to NZD$2.25 billion in September from NZD $3.065 billion in August.

US President Donald Trump said his proposed 100% tariff on goods from China would not be sustainable but blamed Beijing for the latest impasse in trade negotiations that began with Chinese authorities tightening control over rare-earth shipments. Trump also stated that he would meet with Chinese President Xi Jinping and expressed admiration for the Chinese leader. 

His softer tone and confirmation of his intention to meet with Xi helped to mitigate trade tensions between the world’s two largest economies. This, in turn, underpins the China-proxy Kiwi, as China is a major trading partner for New Zealand. 

The US federal government shutdown has entered its fourth week, with no clear end in sight amid a partisan fight in the Senate over federal funding priorities. The shutdown is now the third-longest funding lapse in modern history.  

The GOP-backed bill failed to pass the Senate for the 11th time on Monday. The 50-43 vote fell mostly along party lines. Fears that a prolonged US government shutdown will hurt economic activity could exert some selling pressure on the Greenback and act as a tailwind for the pair in the near term. 

The US September Consumer Price Index (CPI) inflation data will be in the spotlight later on Friday due to the government shutdown-driven data drought. Both headline and core CPI are expected to show a rise of 3.1% YoY in September. Any signs of a hotter-than-expected inflation could boost the USD against the NZD. 

(This story was corrected on October 21 at 01:55 GMT to say, in the fifth paragraph, that the US federal government shutdown has entered its fourth week, not the third week)

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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Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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