NZD/USD strengthens to near 0.5950 on weaker US Dollar, eyes on US-China trade talks

Source Fxstreet
  • NZD/USD trades in positive territory around 0.5950 in Wednesday’s Asian session. 
  • Persistent tariff uncertainty and fears of a US economic slowdown weigh on the US Dollar. 
  • Traders expect the RBNZ to cut its OCR by 25 bps in May. 

The NZD/USD pair strengthens to near 0.5950 during the Asian trading hours on Thursday, bolstered by the weakening of the US Dollar (USD). Traders brace for the US weekly Initial Jobless Claims, Chicago Fed National Activity Index, Durable Goods Orders, and Existing Home Sales, which are due later on Thursday. 

US Treasury Secretary Scott Bessent said on Tuesday that the ongoing tariff showdown against China is unsustainable, and he expects a “de-escalation” in the trade war between the world’s two largest economies in the near future. Late Wednesday, US President Donald Trump's administration stated that it has spoken to 90 countries regarding tariffs already. 

The Trump administration noted that the US will set tariffs for China over the next two to three weeks, and it depends on China how soon tariffs can come down. The uncertainty surrounding Trump’s trade policies raises concerns about the economic slowdown in the US and drags the Greenback lower. 

On the Kiwi front, the rising expectation that the Reserve Bank of New Zealand (RBNZ) will lower its Official Cash Rate (OCR) at the May meeting might cap the upside for the pair. The markets fully expect the RBNZ to cut its 3.5% OCR by 25 basis points (bps) in May, with a further reduction to 2.75% by year-end.

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.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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