NZD/USD edges lower to near 0.5950 as US-China tariff truce deadline looms
- NZD/USD declines to around 0.5950 in Monday’s early Asian session, losing 0.16% on the day.
- China's consumer prices held steady in July, while producer prices extended a 34-month deflation streak.
- Lutnick said a 90-day extension of a US-China tariff truce is likely.
The NZD/USD pair loses ground to near 0.5950 during the early Asian session on Monday. The New Zealand Dollar (NZD) softens against the US Dollar (USD) as China’s deflation fears linger. Traders will keep an eye on the US-China trade talks and await the release of the US July Consumer Price Index (CPI) inflation data.
China’s Consumer Price Index (CPI) was unchanged in July from a year earlier, the National Bureau of Statistics said Saturday. The figure followed a 0.1% increase seen in June and came in below the consensus of a 0.1% decline. Inflation ended a four-month falling streak in June, turning positive. Additionally, factory deflation persisted for 34 consecutive months, with the Producer Price Index (PPI) falling 3.6%, matching June’s decline.
Traders will closely monitor the developments surrounding the US-China tariff truce as the deadline looms. US Commerce Secretary Howard Lutnick said on Thursday that it's likely that US President Donald Trump would extend the trade deadline by another 90 days.
Meanwhile, US Trade Representative Jamieson Greer stated that the world’s two largest economies were “working towards” an extension. Any positive developments could help limit China’s proxy Kiwi’s losses, as China is a major trading partner of New Zealand.
The US inflation report for July will be in the spotlight later on Tuesday. The CPI is expected to show an increase of 2.8% YoY in July, while the core CPI is projected to show a rise of 3.0% in the same report period. Any signs of softer US inflation could prompt the Federal Reserve (Fed) to cut its rate this year and exert some selling pressure on the Greenback.
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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