NZD/USD attracts some buyers above 0.5900 on US-China trade optimism
- NZD/USD drifts higher to around 0.5925 in Monday’s Asian session, adding 0.26% on the day.
- Improved risk sentiment supports the New Zealand Dollar.
- Fed officials highlighted the economic uncertainty and trade policy risks.
The NZD/USD pair gains traction to near 0.5925 during the Asian trading hours on Monday. The New Zealand Dollar (NZD) strengthens against the Greenback amid easing concerns over a trade war between the United States and China. Investors will closely monitor the joint statement from the world's two biggest economies on the Geneva trade talks.
After meetings in Geneva, Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer announced on Sunday that an agreement had been reached with China to reduce the US trade deficit. Meanwhile, China's Vice Premier He Lifeng described trade talks with US officials as “an important first step” in stabilising bilateral trade relations. Any positive developments surrounding the US and China trade talks could provide some support to the China-proxy Kiwi, as China is a major trading partner of New Zealand.
A slew of Federal Reserve (Fed) officials on Friday emphasized the economic uncertainty and trade policy risks, as US tariffs are inflation-prone and complicate the Fed's job of balancing its dual mandate goals. Swap markets have priced in the Fed’s first 25 basis points (bps) rate cut for the July meeting, and they expect two additional rate reductions towards the end of the year.
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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