NZD/USD tumbles below 0.5850 as Trump plans new tariffs on China

NZD/USD weakens to around 0.5810 in Tuesday’s Asian session.
The RBNZ is expected to cut its OCR to 4.25% at its meeting Wednesday.
The cautious stance from the Fed might support the USD and cap the pair’s upside.

Lallalit Srijandorn FXStreet

The NZD/USD pair attracts some sellers to around 0.5810 during the Asian trading hours on Tuesday. The rising expectation of aggressive rate cuts from the Reserve Bank of New Zealand (RBNZ) exerts some selling on the Kiwi. All eyes will be on the RBNZ interest rate decision on Wednesday.

The New Zealand central bank will reduce the Official Cash Rate (OCR) by 50 basis points (bps) to 4.25% on Wednesday, according to the majority of economists by Bloomberg. ANZ analysts highlight that the upcoming RBNZ meeting is unlikely to spark a positive shift for the New Zealand Dollar (NZD) and the ongoing dovish stance from the central bank might continue to undermine the NZD against the US Dollar (USD) in the near term.

President-elect Donald Trump said the US will impose an additional 10% tariff on Chinese goods on top of all existing levies due to the influx of illegal drugs such as narcotics, per Bloomberg. Early Tuesday, China's ambassador said that US trade policy will impact China and other countries. This, in turn, drags the China-proxy NZD lower as China is a major trading partner to New Zealand.

On the USD’s front, the stronger economic data and the cautious stance from the US Federal Reserve (Fed) might support the Greenback and create a headwind for the pair. Fed Chair Jerome Powell signaled last week that the Fed isn’t necessarily inclined to cut rates at the next upcoming meetings.“The economy is not sending any signals that we need to be in a hurry to lower rates,” said Powell.

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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