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27 Feb 2025
NZD/USD remains on the defensive below 0.5700 as traders await US GDP release
- NZD/USD softens to near 0.5695 in Thursday’s early Asian session.
- Fresh US tariff threats could undermine the China-proxy Kiwi.
- The preliminary reading of the US Q4 GDP report will be in the spotlight later on Thursday.
The NZD/USD pair remains on the defensive around 0.5695 during the early Asian session on Thursday. The tariff uncertainty from US President Donald Trump weighs on the New Zealand Dollar (NZD). Investors brace for the preliminary reading of Gross Domestic Product (GDP) for the fourth quarter (Q4), which is due later on Thursday.
Trump has already raised tariffs on Chinese goods and has threatened to impose sweeping trade actions, including a 25% border tax on goods from Canada and Mexico, as well as new "reciprocal" tariffs for each country. Trump has also ordered an investigation into copper imports, which could lead to potential tariffs on the metal. Any signs of renewed US tariff threats could drag the China-proxy Kiwi lower as China is a major trading partner to New Zealand.
Furthermore, the expectation of further rate cuts from the Reserve Bank of New Zealand (RBNZ) might contribute to the NZD’s downside. "Our base case is the RBNZ will cut by 25bp at each of the following two meetings, in April and May," said ASB chief economist Nick Tuffley.
On the other hand, the weakening of the US Dollar (USD) due to the slow of softer US economic data might help limit the pair’s losses. US consumer confidence fell the most since August 2021, declining to 98.3 in February versus 105.3 prior, according to the Conference Board. Traders will take more cues from the Fedspeak later on Thursday. The Federal Reserve’s (Fed) Michelle Bowman, Beth Hammack and Patrick Harker are set to speak. These remarks might offer some hints about the US interest rate path this year.
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.