NZD/USD gathers strength to above 0.6050 on trade optimism
- NZD/USD strengthens to around 0.6055 in Thursday’s early Asian session.
- US and China to discuss tariff deadline extension next week.
- Traders brace for the preliminary reading of US PMI data for July later on Thursday.
The NZD/USD pair trades in positive territory near 0.6055 during the early Asian session on Thursday, bolstered by improved risk sentiment. Traders will keep an eye on the prospects of US-China trade deals that could improve the global economic outlook.
US President Donald Trump announced a trade deal on Tuesday with Japan, which lowers tariffs on auto imports to 15% in exchange for a $550 billion package of US-bound investment and loans, per Reuters. These positive developments lift the riskier currency, like the New Zealand Dollar (NZD) against the US Dollar (USD).
However, uncertainty over Trump’s tariffs keeps the market on edge. US Treasury Secretary Scott Bessent stated that he will meet with Chinese officials in Stockholm next week to discuss an extension to the deadline for negotiating a trade deal.
Tariffs might return to 145% on the US side and 125% on the Chinese side without a trade agreement or a negotiation extension. Any signs of renewed trade tensions might exert some selling pressure on the China-proxy Kiwi, as China is a major trading partner of New Zealand.
Furthermore, rising expectations of a rate cut from the Reserve Bank of New Zealand (RBNZ) might contribute to the NZD’s downside. Data released on Monday showed New Zealand's annual inflation rose to a one-year high in the second quarter (Q2) but was below the market consensus. Markets have priced in an 80% possibility of a 25 basis points (bps) cut in August, though investors believe the easing cycle may be nearing its end.
Later on Thursday, the preliminary reading of the US Purchasing Managers Index (PMI) data for July will be in the spotlight. Also, the weekly US Initial Jobless Claims, New Home Sales, and the Chicago Fed National Activity Index will be published. If the reports show weaker-than-expected outcomes, this could weigh on the Greenback and act as a tailwind for the pair.
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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