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7 Apr 2025
NZD/USD remains under selling pressure near 0.5550 on Chinese tariff retaliation
- NZD/USD weakens to near 0.5565 in Monday’s early European session.
- China retaliated against Trump in a trade war with 34% tariffs on US imports, weighing on the China-proxy Kiwi.
- The RBNZ is expected to cut its OCR by 25 bps to 3.50% on Wednesday.
The NZD/USD pair remains under selling pressure around 0.5565 during the early European session on Monday. The New Zealand Dollar (NZD) softens against the Greenback as China slapped a 34% tax on all US imports in retaliation for US President Donald Trump’s tariffs, widening trade tensions between the United States and China.
The Trump administration last week stated that the US will impose a 10% baseline tariff on all imports to the United States (US). China was hit hard, facing a tariff of at least 54% on many goods. Over the weekend, China announced retaliatory tariffs of 34% on US imports, signaling a major escalation of a trade war between the world's two biggest economies. This, in turn, might drag the China-proxy Kiwi lower, as China is the major trading partner to New Zealand.
“We are bearish on the New Zealand dollar because we consider markets have not priced enough negative impacts on the global economy from the trade war,” said Carol Kong, Sydney-based currency strategist at Commonwealth Bank of Australia.
The Reserve Bank of New Zealand (RBNZ) is expected to cut its Official Cash Rate (OCR) by 25 basis points (bps) to 3.50% at its April meeting on Wednesday, and analysts anticipate the New Zealand central bank could make more rate cuts in 2025 as it reacts to US tariffs and their potential global economic fallout. After three straight 50 bps move, an expected quarter-point reduction may end up having little impact on the NZD since swap markets are already fully pricing in that outcome.
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.