NZD/USD hovers around 0.5950 due to easing global trade concerns
- NZD/USD maintains its position following Trump’s indication of ongoing trade discussions, which has helped ease global trade concerns.
- The US Dollar may further strengthen as June inflation report raised the likelihood of Fed maintaining its current interest rates.
- The NZD may continue to weaken as the RBNZ is widely expected to implement additional rate cuts in upcoming meetings.
NZD/USD edges higher after three days of losses, trading around 0.5950 during the early European hours on Wednesday. The pair maintains its position as the global trade concerns ease a little following Trump’s indication of willingness to further engage in trade discussions, indicating the possibility of negotiating with the European Union (EU) and other key trading partners.
However, Trump indicated on Tuesday to prepare to send tariff letters soon to smaller countries, including nations in Africa and the Caribbean, per Reuters. Trump further stated that his administration would likely set a tariff of "a little over 10%" for those countries.
The upside of the NZD/USD pair could be limited as the US Dollar (USD) may regain its ground as the US inflation report for June has renewed concerns over the prospect of prolonged high interest rates from the Federal Reserve (Fed).
The US Consumer Price Index (CPI) climbed 2.7% year-over-year in June, as expected. Core CPI came in at 2.9%, just below the 3.0% forecast but still notably above the Federal Reserve’s 2% target. Traders await the US Producer Price Index (PPI) later on Wednesday, followed by the Fed Beige Book and Industrial Production.
Dallas Fed President Lorie Logan spoke at a World Affairs Council event in San Antonio on Tuesday, noting that the US central bank will probably need to leave interest rates where they are for a while longer to ensure inflation stays low in the face of upward pressure from the Trump administration's tariffs.
Chinese Vice Premier He Lifeng said on Wednesday that officials are stepping up efforts to boost consumption to shore up the Chinese economy. It is important to note that any change in the Chinese economy could impact the New Zealand Dollar (NZD) as China and New Zealand are close trading partners.
The NZD may further lose ground as the Reserve Bank of New Zealand (RBNZ) is widely expected to deliver more rate cuts in the upcoming meetings, driven by the subdued activity in both the manufacturing and services sectors. The RBNZ decided to leave its official Cash Rate (OCR) unchanged at 3.25% last week.
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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