NZD/USD treads water above 0.5700, as the risk-off mood holds bulls
- The Kiwi Dollar is looking for direction about 0.5700, with upside attempts limited below 0.5750
- Concerns about a Sino-US trade war are hurting the China-proxy NZD.
- The protracted US shutdown and rising bets of back-to-back Fed rate cuts keep the pair supported.
The New Zealand Dollar recovery attempt from six-month lows at 0.5685 has remained limited at the lower range of the 0.5700s, which leaves the pair practically unchanged on the week, and the broader bearish trend intact.
The Kiwi has been unable to take advantage of the US Dollar weakness, weighed down by the sour market sentiment, as the trade tensions between the US and China, New Zealand’s main trading partner, escalate to a boiling point
Fears of a US-China trade war are also hurting the NZD
The Sino-US rift reached a new stage this week after President Trump affirmed that the country is already in a trade war with China, and Treasury Secretary Scott Bessent attacked the Chinese trade negotiator to make matters worse.
Apart from that, the US government shutdown entered its third week without hopes of any near-term solution, while the Federal Reserve keeps sending signals of further rate cuts ahead, which is keeping the pair from depreciating further.
In New Zealand, the calendar has been light this week, but the Kiwi is still weighed by the unexpected jumbo –50 basis points– rate cut by the Reserve Bank of New Zealand and the downbeat business activity data released afterwards.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
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