- The NZD/USD pair fell to around 0.5660 at the start of the Asian session on Wednesday, down 0.18% on the day.
- Trump’s tariff threats undermine China’s Kiwi proxy.
- The Reserve Bank of New Zealand is likely to deliver a third major rate cut at its February meeting.
NZD/USD is attracting some sellers near 0.5660 during the early Asian session on Wednesday. The New Zealand Dollar (NZD) is facing some selling pressure after US President Donald Trump said he is discussing a 10% tariff on China on February 1.
Trump said Tuesday that his administration is discussing imposing a 10% tariff on goods imported from China on February 1 because fentanyl is being sent from China to Mexico and Canada, according to Reuters. Investors will be closely monitoring developments surrounding US tariff policies, as China is a major trading partner for New Zealand.
New Zealand Consumer Price Index (CPI) inflation was slightly higher than expected in December. However, the overrun does not appear large enough to dampen expectations of another big interest rate cut from the Reserve Bank of New Zealand (RBNZ) in February.
Swaps markets are now placing a 90% chance of a further 50 basis point cut on February 19, on top of the two points delivered earlier in the session. The Reserve Bank of New Zealand is expected to deliver a total of 100 basis points of interest rate cuts for the remainder of 2025. The Reserve Bank of New Zealand’s dovish stance continues to weigh on the New Zealand dollar against the US dollar.
Frequently asked questions about the New Zealand dollar
The New Zealand Dollar (NZD), also known as the Kiwi, is a popular currency among investors. Its value is widely determined by the health of the New Zealand economy and the policy of the country’s central bank. However, there are some unique characteristics that could make the New Zealand dollar move as well. The performance of the Chinese economy tends to move the New Zealand dollar because China is New Zealand’s largest trading partner. Bad news for the Chinese economy will likely mean New Zealand’s exports to the country will decline, affecting the economy and therefore its currency. Another factor that affects the New Zealand dollar is dairy prices as the dairy industry is New Zealand’s main export. Higher dairy prices boost export income, which contributes positively to the economy and therefore the New Zealand dollar.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain inflation between 1% and 3% over the medium term, with a focus on keeping it near the 2% midpoint. To this end, the Bank sets an appropriate level of interest rates. When inflation is very high, the Reserve Bank of New Zealand will increase interest rates to cool the economy, but this move will also cause bond yields to rise, making it more attractive for investors to invest in the country and thus strengthening the New Zealand dollar. Conversely, low interest rates tend to weaken the New Zealand dollar. The so-called spread, or how New Zealand’s interest rates compare or are expected to compare to those set by the US Federal Reserve, can also play a major role in moving the NZD/USD pair.
New Zealand’s macroeconomic data releases are key to assessing the state of the economy and can influence the valuation of the New Zealand Dollar (NZD). A strong economy, based on high economic growth, low unemployment, and high confidence, is good for the New Zealand dollar. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength is accompanied by higher inflation. Conversely, if economic data is weak, the value of the New Zealand dollar is likely to decline.
The New Zealand Dollar (NZD) tends to strengthen during periods of risk, or when investors view broader market risk as low and are optimistic about growth. This tends to lead to a more positive outlook for commodities and so-called “commodity currencies” such as the NZD. Conversely, the New Zealand dollar tends to weaken in times of market turmoil or economic uncertainty as investors tend to sell riskier assets and flee to more stable safe havens.
