NZD/USD holds losses below 0.5700 following news of Trump tariffs

NZD/USD weakens as risk aversion intensifies, driven by growing support among Trump’s advisers for imposing tariffs on Mexico and Canada.
Trump announced plans to impose tariffs on Colombia; however, further action was averted as Colombia later agreed to all terms.
The NZD remains under pressure following the release of mixed PMI data from China, New Zealand’s close trading partner.

Akhtar Faruqui FXStreet

NZD/USD has given up its recent gains from the previous two sessions, trading around 0.5680 during European hours on Monday. The risk-sensitive Kiwi pair faces challenges amid increased risk aversion as the Wall Street Journal (WSJ) reported growing momentum among Trump's advisers to impose 25% tariffs on Mexico and Canada starting February 1. Trump's advisers are adamant about not waiting for negotiations or talks.

Moreover, Trump announced plans on Sunday to impose tariffs and sanctions on Colombia, following the country's refusal to allow US military planes carrying deported migrants. However, the White House announced on Monday that Colombia has agreed to all terms, easing some of the tensions. Colombia's Foreign Minister confirmed that the "impasse with the US has been overcome."

The US Dollar Index (DXY), which tracks the value of the US Dollar against six major currencies, has rebounded from its monthly low of 107.22 recorded on Friday. The DXY trades near 107.70 at the time of writing.

The NZD/USD pair remains under pressure following the release of mixed Chinese Purchasing Managers' Index (PMI) data. As close trade partners, China's economic performance significantly impacts New Zealand’s economy.

China's NBS Manufacturing PMI dropped to 49.1 in January, down from 50.1 in December, missing market expectations of 50.1. Similarly, the NBS Non-Manufacturing PMI fell to 50.2 in January from December's 52.2 reading.

The New Zealand Dollar (NZD) failed to gain support from China’s new stimulus measures aimed at promoting the development of index investment products, as part of efforts to revive the struggling equity market. The China Securities Regulatory Commission (CSRC) has approved a second round of long-term stock investment pilot programs valued at 52 billion Yuan ($7.25 billion).

New Zealand Dollar FAQs

What key factors drive the New Zealand Dollar?

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.

How do decisions of the RBNZ impact the New Zealand Dollar?

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.

How does economic data influence the value of the New Zealand Dollar?

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.

How does broader risk sentiment impact the New Zealand Dollar?

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.

Author

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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