NZD/USD weakens to near 0.5700 as Trump’s tariffs loom

NZD/USD drifts lower to 0.5705 in Monday’s Asian session.
Trump plans to announce new "reciprocal" tariffs on Wednesday, weighing on the Kiwi.
The official Chinese Manufacturing PMI came in at 50.5 in March vs. 50.2 prior; non-manufacturing PMI rose to 50.8.

Lallalit Srijandorn FXStreet

The NZD/USD pair edges lower to around 0.5705 during the Asian trading hours on Monday. The New Zealand Dollar (NZD) softens against the US Dollar (USD) as traders brace for the announcement of US President Donald Trump’s new tariff policy on Wednesday.

Trump is set to announce new "reciprocal" tariffs on Wednesday to tackle perceived trade imbalances, potentially adding more tariffs on Chinese goods. Trump has already placed a total of 20% tariffs on all Chinese imports since taking office in January, blaming Beijing for failing to do enough to curb the flow of chemicals used to make the deadly drug fentanyl into the US. Escalating trade tensions between the US and China might exert some selling pressure on the Kiwi, as China is a major trading partner to New Zealand.

The encouraging Chinese economic data might help limit the NZD’s losses. Data released by China’s National Bureau of Statistics (NBS) on Monday showed that the country’s Manufacturing Purchasing Managers' Index (PMI) rose to 50.5 in March from 50.2 in February. The reading came in line with the market consensus. Additionally, the Non-Manufacturing PMI improved to 50.8 in March from the previous reading of 50.4, better than the estimation of 50.5.

Furthermore, the Chinese government has pledged more fiscal stimulus, increased debt issuance and further monetary easing. China’s finance ministry will also inject 500 billion yuan ($69 billion) into four of the nation’s largest state banks following through on Beijing’s earlier effort to strengthen the financial sector.

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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