NZD/USD gathers strength above 0.5850 as US and China agree to ease tariffs for 90 days
- NZD/USD attracts some buyers to around 0.5865 in Tuesday’s early Asian session.
- The US and China agreed to a 90-day pause on tariffs and a reduction in reciprocal tariffs.
- Markets expect two additional rate cuts towards the end of the year.
The NZD/USD pair trades in positive territory around 0.5865 during the Asian session on Tuesday. The New Zealand Dollar (NZD) strengthens against the Greenback after the US and China announced a trade deal, easing fears of a trade war between the world’s two largest economies. Traders will keep an eye on the US April Consumer Price Index (CPI) report, which is due later on Tuesday.
US President Donald Trump hailed a “total reset” in relations between China and the US after the countries agreed to a 90-day pause on tariffs and a reduction in reciprocal tariffs by 115 percentage points. With the 115 percentage point deduction, Chinese duties on US goods will be lowered to 10%, while the US tax on Chinese goods will be reduced to 30%. These positive developments provide some support to the China-proxy Kiwi, as China is a major trading partner of New Zealand.
On the other hand, the easing of trade tensions between the world’s two largest economies gives investors their clearest indication yet that the Trump administration is taking a softer approach than expected, raising hope that the US economy can avoid a recession. This might lift the US Dollar (USD) and create a headwind for the pair.
Swap markets have priced in the Fed’s first 25 basis points (bps) rate cut for the September meeting, and they expect two additional rate reductions towards the end of the year. Last week, they indicated three cuts this year, with a change likely as soon as July.
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.