• The NZD/USD pair edges higher as the US Dollar remains subdued ahead of the key US Consumer Price Index.
  • RBNZ retains considerable room to lower interest rates further if needed, reinforcing expectations of continued policy easing.
  • Geopolitical tensions resurfaced after Trump intensified the trade standoff with China by raising tariffs on Chinese imports to 125%.

The NZD/USD pair is trading around 0.5680 in early European hours on Thursday, marking its second consecutive day of gains. However, the New Zealand Dollar (NZD may come under pressure following comments from New Zealand Finance Minister Nicola Willis, who stated that the Reserve Bank of New Zealand (RBNZ) has significant scope to cut interest rates further if necessary.

In line with market expectations, the RBNZ reduced the Official Cash Rate (OCR) by 25 basis points to 3.50% on Wednesday, marking its fifth consecutive rate cut since initiating its easing cycle in 2024. According to UOB Group economist Lee Sue Ann, the central bank has now lowered rates by a total of 200 basis points since August 2024.

Additional pressure on the NZD might have emerged after US President Donald Trump escalated trade tensions with China by raising tariffs on Chinese imports to 125%, following China’s hiking tariffs on all US imports to 84%. Given New Zealand’s strong trade ties with China, this move sparked concerns about potential spillover effects on the NZ economy.

Moreover, China added six US firms—including defense and aerospace companies Shield AI and Sierra Nevada—to its trade blacklist. China also imposed export controls on a dozen US companies, including American Photonics and BRINC Drones.

These tit-for-tat measures have overshadowed earlier signs of progress in the US-China trade talks. Notably, Washington had recently eased tariffs to 10% for 90 days to facilitate broader negotiations. On Wednesday, President Trump announced a 90-day pause on new tariffs for most US trade partners, maintaining the lower 10% rate to give diplomacy more room to operate.

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.

Source: Fxstreet