NZD/USD holds positive ground above 0.5750 on US-China trade deal progress

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NZD/USD attracts some buyers to around 0.5765 in Monday’s early Asian session.
US and China agreed on a framework for trade deal ahead of the Xi-Trump meeting.
The Fed is anticipated to cut its interest rates by 25 bps at the October meeting on Wednesday.

The NZD/USD pair holds positive ground near 0.5765 during the early European session on Monday. Easing tensions over the US-China trade tensions between the US and China provides some support to the New Zealand Dollar (NZD) against the US Dollar (USD). US President Donald Trump will meet Chinese President Xi Jinping later on Thursday to decide on the framework of a trade deal.

The US and China hailed progress in trade talks in Malaysia. US Treasury Secretary Scott Bessent said that the outlines of the agreement include China easing rare earth export restrictions and buying "significant" amounts of US soybeans in exchange for Trump removing his threat of adding 100% tariffs on Chinese goods.

Meanwhile, China’s top trade negotiator, Li Chenggang, stated that both countries had reached a “preliminary consensus” and will next go through their respective internal approval processes. Traders will closely monitor the meeting between Trump and Xi Jinping later on Thursday. The positive developments surrounding US-China trade negotiations could lift the China-proxy Kiwi, as China is a major trading partner for New Zealand.

On the USD front, the Federal Reserve (Fed) interest rate decision will be in the spotlight on Wednesday. The US central bank is widely expected to lower interest rates by another quarter point, bringing the benchmark rate to 3.75-4.00%.

The US government shutdown has sparked debate among Fed officials. Policymakers are weighing whether to reduce rates quickly to boost a weakening labor market or keep rates steady in the face of inflation that remains stubbornly above the Fed 2% target. Any hawkish remarks from Fed Chair Jerome Powell during the press conference could underpin the Greenback and act as a headwind for the pair in the near term.

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.