NZD/USD weakens below 0.5950, budget bill concerns might cap its downside

NZD/USD attracts some sellers to around 0.5930 in Thursday’s early Asian session, down 0.10% on the day.
The renewed trade tensions between the US and China weigh on the China-proxy Kiwi.
'Sell America' investment theme might undermine the US Dollar and cap the pair’s downside.

Lallalit Srijandorn FXStreet

The NZD/USD pair softens to near 0.5930 during the early Asian session on Thursday. However, the downside for the pair might be limited amid rising concerns over the US President Donald Trump administration's tax cut and spending bill and worries over the performance of the US economy.

New Zealand’s trade surplus soared to NZ$1,426 million in April from NZ$794 million in March, Statistics New Zealand revealed on Wednesday. This figure came in better than the estimation of NZ$500 million. However, the renewed fears of trade tensions between the US and China weigh on the China-proxy Kiwi, as China is a major trading partner of New Zealand.

China’s Commerce Ministry said early Wednesday that US measures on China’s advanced chips are ‘typical of unilateral bullying and protectionism.’ Chinese authorities urged the US to immediately correct its erroneous practices.

On the other hand, the worries about a ballooning deficit that threatens America’s status as a safe haven exert some selling pressure on the Greenback. Republicans are still divided over the details of the tax legislation. House Speaker Mike Johnson said that Trump met with House Republicans on Tuesday and failed to convince his party's holdouts to back his sweeping tax bill. Republican hardliners continue to argue the bill does not sufficiently cut spending.

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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