NZD/USD weakens below 0.5800 despite Trump’s tariff threats

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The NZD/USD pair loses ground to around 0.5790 during the early Asian session on Tuesday, pressured by renewed US Dollar (USD) demand. Nonetheless, the potential downside for the pair might be limited amid the fresh US President Donald Trump trade war.

NZD/USD softens to near 0.5790 in Tuesday’s early Asian session.
Trump threatened escalating tariffs on eight European countries in the way of his ambition to buy Greenland.
The Chinese economy slowed to an annualized growth of 4.5% in Q4, compared with an expansion of 4.8% in Q3.

On Saturday, Trump said that he would impose an additional 10% import tariff from February 1 on goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and the United Kingdom (UK) until the United States (US) is allowed to buy Greenland. The threat by Trump to impose fresh tariffs on eight European countries could boost the "Sell America" narrative and create a tailwind for the pair.

Data released by the National Bureau of Statistics on Monday showed that the Chinese economy hit the official target of around 5%, the same growth as in 2024, despite a slowdown to 4.5% in the fourth quarter (Q4) of the year. The quarterly Gross Domestic Product (GDP) eased from 4.8% growth in Q3 and was the weakest quarterly figure since early 2023. The positive Chinese economic data could provide some support to the China-proxy Kiwi, as China is a major trading partner to New Zealand.

On Tuesday, the People’s Bank of China (PBOC), China's central bank, announced to leave its Loan Prime Rates (LPRs) unchanged. The one-year and five-year LPRs were at 3.00% and 3.50%, respectively.

Traders will closely watch the New Zealand Consumer Price Index (CPI) inflation report on Friday. The headline CPI is expected to show an increase of 0.5% QoQ in Q4. Any signs of softer New Zealand inflation could weigh on the New Zealand Dollar (NZD) as it could reduce the chance of the Reserve Bank of New Zealand (RBNZ) raising interest rates.

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.