NZD/USD strengthens above 0.6000 on potential of extended US-China tariff truce
- NZD/USD gains ground to around 0.6020 in Monday’s early Asian session.
- The potential of an extended tariff truce between the US and China boosts the risk sentiment, supporting the China-proxy Kiwi.
- Investors await the Fed interest rate decision on Wednesday ahead of US employment data.
The NZD/USD pair trades on a positive note near 0.6020 during the early Asian session on Monday. The New Zealand Dollar (NZD) strengthens against the Greenback amid hopes that the United States (US) will extend its tariff truce by another three months.
Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng will meet in Stockholm later on Monday to discuss the long-standing economic dispute between the world's two largest economies. The South China Morning Post reported, citing unnamed sources, that the US and China are expected to extend their tariff truce and will not impose additional tariffs on each other during the extension. Positive developments surrounding US-China trade talks provide some support to the China-proxy Kiwi, as China is a major trading partner of New Zealand.
The US Federal Reserve (Fed) is widely expected to hold rates at their current levels at its July meeting on Wednesday. According to the CME FedWatch tool, markets have priced in nearly a 62% possibility of a rate cut in the September meeting. Investors will closely monitor the FOMC press conference for some hints about the timeline of rate reduction this year.
Additionally, the US employment report will take center stage on Friday, as it could signal the likelihood of rate cuts at future Fed meetings. If the report shows a stronger-than-expected outcome, this could lift the Greenback and create a headwind for the pair.
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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