NZD/USD loses momentum to near 0.6000 amid concerns about tariff wars

NZD/USD drifts lower to around 0.6015 in Friday’s early Asian session.
US Initial Jobless Claims unexpectedly fell to a seven-week low last week.
An aggressive tariff policy and ongoing trade jitters undermine the New Zealand Dollar.

Lallalit Srijandorn FXStreet

The NZD/USD pair loses ground to near 0.6015, snapping the three-day winning streak during the early Asian session on Friday. The New Zealand Dollar (NZD) weakens against the Greenback amid ongoing trade jitters. Traders will closely monitor the US trade headlines for fresh impetus.

Data released by the US Department of Labour (DOL) on Thursday showed that the US Initial Jobless Claims for the week ending July 5 dropped to 227K, compared to 233K in the previous week. This figure came in lower than the market consensus of 235K. This report suggested that employers may be holding on to workers and showed that there is no urgency for the Federal Reserve (Fed) to resume its interest rate cuts, which lift the US Dollar (USD).

Nonetheless, the renewed escalation of the global trade war could weigh on the riskier assets like the Kiwi. US President Donald Trump late Thursday threatened a 35% tariff on goods imported from Canada, starting August 1.

The US and China agreed to a trade framework in June that restored a fragile truce, but with many details still unclear. China has until August 12 to reach an agreement with the White House. Any signs of trade tensions between the world’s two largest economies could exert some selling pressure on the China-proxy Kiwi, as China is a major trading partner of New Zealand.

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

Lallalit Srijandorn

FXStreet

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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