NZD/USD posts modest gains to near 0.5800 as Trump trade risks loom

• NZD/USD edges higher to 0.5790 in Thursday’s early Asian session.
• Chinese authorities expect Yuan to weaken as US tariffs loom, weighing on the NZD. 
• Swaps traders are betting on a 25 bps rate cut at the Fed’s policy meeting next week.

The NZD/USD pair trades with mild gains around 0.5790 during the early Asian session on Thursday. Trump trade risks continue to undermine the China-proxy New Zealand Dollar (NZD). Traders await the release of the US November Producer Price Index (PPI) for fresh impetus, which is due later on Thursday. 

China's authorities are considering allowing the Chinese Yuan to depreciate in 2025 as they brace for potential higher US trade tariffs as Donald Trump returns to the White House. The weakening of the CNY translates into a softer NZD as New Zealand trades as proxies to China owing to the importance of China as an export market for New Zealand.

The US inflation, as measured by the Consumer Price Index, rose to 2.7% YoY in November from 2.6% in October, in line with the market consensus. The core CPI, excluding volatile food and energy prices, climbed 3.3% on an annual basis in November, compared to 3.3% during the same period. On a monthly basis, the headline CPI showed a 0.3% MoM, while the core CPI increased 0.3% MoM in November. 

Investors believe that this report was not high enough to keep the Federal Reserve (Fed) from cutting rates at its December meeting next week. Fed funds futures have priced in roughly 95% odds that the US central bank will lower rates in the December meeting, according to CME’s FedWatch Tool.

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.

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