The NZD/USD pair is losing ground near 0.5740 during Asian trading hours on Thursday. The New Zealand Dollar (NZD) weakens against the US Dollar (USD) amid renewed fears of a trade war between the US and China. The weekly US Initial Jobless Claims report and the Federal Reserve report will be the highlights later on Thursday.
US President Donald Trump on Wednesday signed two executive orders to impose 25% tariffs on some semiconductors and prepare to impose tariffs on critical metals, if necessary. According to the White House, the United States was 100% dependent on net imports of 12 critical minerals, and 50% dependent on exports in 29 critical minerals.
This dependence has given China leverage in recent discussions between the United States and China due to its dominance of important minerals and their processing. It is worth noting that China is a major trading partner for New Zealand, and negative developments surrounding US-China relations could undermine the Kiwi’s China proxy.
On the other hand, concerns about the independence of the Federal Reserve (Fed) could weigh on the US dollar and create tailwinds for the pair. Federal Reserve Chairman Jerome Powell criticized US President Donald Trump’s administration’s decision to summon him, saying it amounted to intimidating the US central bank into introducing easier monetary policy.
Trump said late Wednesday that he has no plans to fire Powell despite the Justice Department’s criminal investigation into the Fed chief, but that it is “too early” to say what he will ultimately do.
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 New Zealand. 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.
