NZD/USD strengthens above 0.5950 amid hopes for US-China trade deal
- NZD/USD edges higher to near 0.5980 in Wednesday’s Asian session.
- The US Treasury secretary said a trade war with China is not sustainable.
- The RBNZ dovish bets might cap the NZD’s upside.
The NZD/USD pair gathers strength to around 0.5980 during the Asian trading hours on Wednesday. The New Zealand Dollar (NZD) has risen to its highest level since early November 2024 against the US Dollar (USD) after the optimistic comments from the US Treasury Secretary Scott Bessent. Traders will take more cues from the flash US S&P Global Manufacturing and Services PMIs for April, which will be published later on Wednesday.
Bessent said on Tuesday that the ongoing tariffs 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. The easing fears of US-China trade tensions fuel optimism in markets and provide some support to the China-proxy Kiwi as China is New Zealand's largest trading partner.
US Treasury Secretary also cautioned that talks between the US and China had yet to formally start. Trump imposed the import tax of 145% on China, which has countered with 125% tariffs on US goods. The concerns over slower US economic growth and higher inflationary pressures could undermine the USD and create a tailwind for NZD/USD.
On the other hand, money markets have fully priced in a rate cut from the Reserve Bank of New Zealand (RBNZ) at the May meeting despite the surge in inflation. The RBNZ cut rates by a quarter-point earlier this month, lowering its Official Cash Rate (OCR) to 3.5%, the lowest level since October 2022. The New Zealand central bank is expected to remain aggressive and continue cutting rates in order to boost the New Zealand economy. This, in turn, might cap the upside for the NZD in the near term.
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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