NZD/USD softens to near 0.6000 as tariff tensions return, eyes on Chinese Trade Balance data
- NZD/USD weakens around 0.6000 in Monday’s early Asian session.
- Fresh tariff fears undermine the New Zealand Dollar.
- China’s Trade Balance data for June will be the highlight later on Monday.
The NZD/USD pair trades in negative territory near 0.6000 during the early Asian trading hours on Monday. The renewed trade tensions triggered by US President Donald Trump drag the New Zealand Dollar (NZD) lower against the US Dollar (USD). Investors brace for China’s Trade Balance data for June, which will be released later on Monday.
Trump on Saturday rekindled trade tensions with new tariffs on the European Union (EU) and Mexico, declaring a 30% rate. Trump added that new rates will kick in on August 1 if they cannot negotiate better terms. Renewed concerns over the global trade war are likely to weigh on the riskier currency like the NZD against the USD in the near term.
Traders await the Chinese trade data for more cues about the impact of US tariffs and the potential of front-loading of shipments. On Tuesday, China’s Gross Domestic Product (GDP) report for the second quarter (Q2) will take center stage. The Chinese economy is expected to grow 5.2% year-on-year in the quarter ended June. Additionally, Chinese Retail sales growth is projected to have slowed to 5.5% in June year-on-year from 6.4% in May.
The potential of higher US tariffs on Chinese imports in the coming months has spurred some analysts to call on Beijing to provide more stimulus measures to boost growth. Any positive developments surrounding more consumer-focused support could boost the China-proxy Kiwi, as China is a major trading partner of New Zealand.
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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