- NZD/USD loses momentum to near 0.6035 in Monday’s Asian session.
- Trump said tariff letters to 12-15 countries were signed and are going out Monday.
- The New Zealand central bank is widely expected to pause the easing cycle on Wednesday.
The NZD/USD pair extends the decline to around 0.6035 during the Asian trading hours on Monday. The New Zealand Dollar (NZD) weakens against the Greenback amid tariff uncertainty triggered by US President Donald Trump. The Reserve Bank of New Zealand (RBNZ) interest rate decision and the Federal Open Market Committee (FOMC) Minutes will be the highlights on Wednesday.
The renewed tariff concerns lift the US Dollar (USD) and act as a headwind for the pair. Reuters reported over the weekend that US President Donald Trump had signed letters to 12 or 15 countries outlining the various tariff levels they would face on goods they export to the United States. I signed some letters, and they’ll go out on Monday,” said Trump.
Trump didn’t say which countries would be targeted or what rates would be set. However, he said on Thursday that the rates in the letters would go into effect August 1 and warned some could be as high as 70%.
RBNZ Chief Economist Paul Conway to discuss tariffs on July 24. Investors will keep an eye on the developments surrounding the trade agreement. However, any signs of positive progress could provide some support to the China-proxy Kiwi, as China is a major trading partner of New Zealand.
The RBNZ is expected to leave interest rates unchanged at the July meeting on Wednesday. According to the Reuters poll, the median forecast shows just one more 25 basis point (bps) reduction this year compared with two in a May survey. Financial market pricing sees less than a 20% odds that the RBNZ will cut its OCR in the coming week, but the possibility of an August cut is more than 70%.
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.