NZD/USD sticks to modest recovery gains below mid-0.5600s, upside seems limited
- NZD/USD stages a modest recovery from over a one-week low amid subdued USD demand.
- The Fed’s hawkish pause and rebounding US bond yields act as a tailwind for the Greenback.
- Trade war fears might contribute to capping the pair ahead of the US PCE Price Index data.
The NZD/USD pair attracts some buyers during the Asian session on Friday and for now, seems to have snapped a three-day losing streak to over a one-week low, around the 0.5620 area touched the previous day. Spot prices currently trade around the 0.5640-0.5645 region, though the upside seems limited.
A generally positive tone around the equity markets caps the US Dollar (USD) recovery from over a one-month low touched earlier this week and turns out to be a key factor lending support to the risk-sensitive Kiwi. Apart from this, the uptick lacks any obvious fundamental catalyst and runs the risk of fizzling out rather quickly amid a bearish fundamental backdrop.
The Federal Reserve's (Fed) hawkish pause on Wednesday marks a big divergence in comparison to bets for a more aggressive policy easing by the Reserve Bank of New Zealand (RBNZ). This, in turn, warrants some caution before placing fresh bullish bets around the NZD/USD pair amid persistent worries about US President Donald Trump's protectionist trade tariffs.
Furthermore, expectations that Trump's policies would reignite inflation trigger a modest bounce in the US Treasury bond yields. This assists the USD to preserve its weekly recovery gains from over a one-month low touched earlier this week, which should contribute to capping the NZD/USD pair ahead of the US Personal Consumption Expenditure (PCE) Price Index.
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.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
