The NZD/USD pair experienced a decline to approximately 0.5730 during the early Asian trading session on Thursday. This depreciation of the New Zealand Dollar (NZD) against the US Dollar (USD) is attributed to the announcement by former US President Donald Trump regarding potential reciprocal tariffs, escalating trade war concerns. The proposed policy includes a baseline tariff of 10% on all US imports, with higher duties targeting major trading partners. Specifically, a White House official indicated a 54% total tariff rate on Chinese imports, effective April 9, comprising an existing 20% tariff and an additional 34% in reciprocal tariffs.
The potential for a US-China trade conflict and associated economic uncertainties may negatively impact the New Zealand Dollar, given China’s significance as a major trading partner. Conversely, market participants are increasingly anticipating Federal Reserve (Fed) interest rate cuts, potentially commencing in June, in response to the anticipated inflationary and economic slowdown effects of the new tariffs. According to the CME FedWatch tool, the probability of a Fed rate cut in June has risen to nearly 70%, up from approximately 60% prior to the tariff announcement. This expectation could weaken the USD and provide some support for the NZD/USD pair.
The New Zealand Dollar’s value is influenced by the health of the New Zealand economy, Reserve Bank of New Zealand (RBNZ) policy, and the performance of the Chinese economy due to China’s status as New Zealand’s largest trading partner. Dairy prices, a key export for New Zealand, also impact the NZD.
The RBNZ targets an inflation rate between 1% and 3%, adjusting interest rates accordingly. Higher interest rates tend to strengthen the NZD, while lower rates weaken it. The interest rate differential between New Zealand and the US also affects the NZD/USD pair.
New Zealand’s macroeconomic data, including economic growth, unemployment, and consumer confidence, influences the NZD’s valuation. Strong economic data supports the NZD, while weak data leads to depreciation.
The NZD typically strengthens during periods of low market risk and optimism about global growth, benefiting from its status as a commodity currency. Conversely, it tends to weaken during times of market turbulence or economic uncertainty as investors seek safe-haven assets.
