NZD/USD appreciates to near 0.5950 ahead of Nonfarm Payrolls report
- NZD/USD could weaken as easing US trade tensions lend support to the US Dollar.
- Trump signaled potential trade deals with India, Japan, and South Korea, and voiced optimism about resolving with China.
- Traders remain cautious ahead of the upcoming Nonfarm Payrolls report.
NZD/USD retraces its recent losses from the previous session, trading around 0.5940 during the European hours on Friday. The upside of the pair could be restrained as signs of easing US trade tensions support the US Dollar (USD).
Investor sentiment shifted after US President Donald Trump signaled potential trade deals with India, Japan, and South Korea, and expressed optimism about resolving tensions with China.
However, the US Dollar Index (DXY), which tracks the USD against a basket of six major currencies, is losing ground after registering gains in the previous three successive sessions, trading near 99.90 at the time of writing.
Market sentiment remains cautious ahead of the upcoming Nonfarm Payrolls (NFP) report, as investors look for insight into how tariffs may be impacting employment trends.
US Treasury Secretary Janet Yellen cautioned that Trump’s tariffs could have a "tremendously adverse" impact on the US economy. Treasury Secretary Scott Bessent noted that the inverted yield curve, with two-year yields below the federal funds rate, supports the case for Federal Reserve rate cuts.
The NZD/USD pair gains strength as the New Zealand Dollar (NZD) appreciates, supported by improving market sentiment and indications of easing US-China trade tensions, given New Zealand’s strong trade ties with China.
According to Bloomberg, China is open to resuming trade talks, acknowledging recent overtures from the US while stressing that Washington must address tariff issues, which are seen as the primary source of ongoing tensions.
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.
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