NZD/USD gathers strength above 0.5800 as Trump’s tariff threats fuel ‘Sell America’ trade
- NZD/USD gathers strength to around 0.5835 in Wednesday’s early European session.
- Trump’s threat to renew a trade war with Europe has prompted the so-called “Sell America” trade.”
- Traders brace for Trump’s speech on Wednesday ahead of New Zealand’s inflation data.
The NZD/USD pair trades in positive territory for the fourth consecutive day near 0.5835 during the early European session on Wednesday. The US Dollar (USD) weakens against the New Zealand Dollar (NZD) as US President Donald Trump's tariff threats spark new fears of 'Sell America' trade. Traders will keep an eye on Trump’s speech at the World Economic Forum in Davos, Switzerland, on Wednesday.
Trump said on Saturday that he would impose additional 10% tariffs on eight European countries that have sought to block his ambitions to acquire Greenland. He added that he would raise the levies to 25% if an agreement is not reached by June 1.
“Investors were dumping dollar assets on fears of prolonged uncertainty, strained alliances, a loss of confidence in U.S. leadership, potential retaliation and an acceleration of de-dollarisation trends," said Tony Sycamore, market analyst at IG in Sydney.
The New Zealand Consumer Price Index (CPI) inflation report will be the highlight on Friday. The headline CPI is expected to show an increase of 0.5% QoQ in the fourth quarter (Q4). On an annual basis, the CPI is projected to show a rise of 3.0% during the same period. Any signs of softer New Zealand inflation could weigh on the Kiwi as it could reduce the chance of the Reserve Bank of New Zealand (RBNZ) raising interest rates.
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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