NZD/USD declines below 0.5750 amid renewed US-China trade tensions

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NZD/USD softens to around 0.5740 in Thursday’s Asian session.
Trump imposed 25% tariff on imports of some advanced computing chips, weighing on the China-proxy New Zealand Dollar.
Concerns over the Fed’s independence might cap the downside for the pair.

The NZD/USD pair loses ground to near 0.5740 during the 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 Fedspeak will be the highlights later on Thursday.

US President Donald Trump on Wednesday signed two executive orders to impose a 25% tariff on some semiconductors and prepare for levies on critical minerals, if needed. According to the White House, the US was 100% net-import reliant for 12 critical minerals and 50% plus reliant on exports for 29 critical minerals.

That reliance has given China power in recent U.S.-China discussions due to its dominance in critical minerals and processing. It’s worth noting that China is a major trading partner for New Zealand, and negative developments surrounding the US-China could undermine the China-proxy Kiwi.

On the other hand, concerns over the Federal Reserve’s (Fed) independence could weigh on the USD and create a tailwind for the pair. The Fed Chair Jerome Powell called out the US President Donald Trump administration's decision to subpoena him, saying it amounted to intimidating the US central bank into delivering easier monetary policy.

Trump stated late Wednesday that he has no plans to fire Powell despite the Justice Department's criminal investigation into the Fed chair, but it was "too early" to say what he would ultimately do.

New Zealand Dollar FAQs

What key factors drive the New Zealand Dollar?

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.

How do decisions of the RBNZ impact the New Zealand Dollar?

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.

How does economic data influence the value of the New Zealand Dollar?

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.

How does broader risk sentiment impact the New Zealand Dollar?

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.