The New Zealand Dollar tests YTD highs at 0.6030, fuelled by the risk-on mood.
Trump’s pause on 50% tariffs on the EU has boosted appetite for risk.
The US Dollar keeps bleeding on concerns about US fiscal recklessness.
US President Trump’s decision to temporarily suspend 50% tariffs on EU products is boosting investors’ appetite for risk on Monday. This is fuelling the risk-sensitive New Zealand Dollar, which has rallied to retest the Year-to-Date highs at 0.6030.
Trump backed off on his plan to impose 50% tariffs on all EU products, and the market has breathed a sigh of relief, wary that a trade rift between the US and Europe would pose a significant impact on global economic growth.
The RBNZ is expected to cut rates on Wednesday
This news has diverted investors’ focus from the upcoming Reserve Bank of New Zealand’s monetary policy meeting, due on Wednesday. The market consensus anticipates a 25 basis point rate cut to 3.25%.
Beyond that, the bank statement is likely to lean on the dovish side, suggesting further monetary easing ahead, in the face of the uncertain global trade context. The New Zealand Economic Research Institute, considered the shadow monetary policy board, has confirmed this view, with most members recommending a quarter-point cut and one vowing for a 0.50% cut.
The Dollar, however, is suffering from weaknesses of its own, which keep NZD’s downside attempts limited. Moody’s downgraded the country’s debt rating last week, at the time that Trump’s sweeping tax bill passed the House of Representatives to be discussed in the US Senate.
The bill is expected to increase US debt by about $3.8 trillion in the next ten years, which has raised serious concerns about US fiscal stability, is undermining confidence in US Treasury Bonds, and the US Dollar in a “Sell America” trade.
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