NZD/USD weakens to near 0.5950 despite potential fresh stimulus measures from China
- NZD/USD edges lower to near 0.5950 in Monday’s Asian session.
- China announced further measures to boost economic growth and employment.
- The RBNZ is expected to cut its 3.5% OCR by 25 bps in the May meeting.
The NZD/USD pair softens to around 0.5950 during the Asian trading hours on Monday, pressured by the renewed US Dollar (USD) demand. Signs that global trade tensions between the United States and China may be easing provide some support to the Greenback. Traders assess China’s press conference about policies and measures on Monday.
The Politburo emphasized efforts to maintain stability by supporting firms and workers most affected by US tariffs, according to Friday's statement. The National Development and Reform Commission, Ministry of Human Resources and Social Security, Ministry of Commerce and People’s Bank of China (PBOC) on Monday reiterated plans to accelerate debt issuance, ease monetary policy and vowed to support employers to safeguard jobs.
Chinese authorities announced further measures to prompt economic growth and employment. They will closely monitor domestic and external changes and improve the policy toolkit. Beijing added that some new policies will be rolled out in the second quarter. This, in turn, could lift the China-proxy Kiwi, as China is a major trading partner to New Zealand.
US Agriculture Secretary Brooke Rollins said on Sunday that the Trump administration is having daily talks with China over tariffs. Rollins further stated that there were ongoing talks between the US and China and that trade negotiations with other nations were “very close.” The easing fears of trade tensions underpin the Greenback and act as a headwind for the NZD/USD pair for the time being.
Meanwhile, the rising bets of further rate cuts from the Reserve Bank of New Zealand (RBNZ) might weigh on the New Zealand Dollar (NZD). The markets fully expect the RBNZ to cut its 3.5% OCR by 25 basis points (bps) in May, with a further reduction to 2.75% by year-end.
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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