The NZD/USD exchange rate has fallen to approximately 0.5630 during the early trading session in Asia on Friday, largely driven by concerns surrounding potential tariff increases from the United States on China. The remarks from President Trump indicating that China will face tariffs have compounded uncertainties in the market, negatively influencing the New Zealand dollar as it is seen as a proxy for Chinese economic performance. Furthermore, challenges surrounding New Zealand’s economic outlook, combined with expectations of a dovish stance from the Reserve Bank of New Zealand (RBNZ), are putting additional pressure on the Kiwi.
Amid ongoing tensions, traders are keenly awaiting more specific details about the administration’s tariff policies. In conjunction with this, significant economic reports, including the US Personal Consumption Expenditures (PCE), Personal Income and Spending, along with the Chicago Purchasing Managers’ Index (PMI), are set to be released later in the day. These indicators could further influence market sentiment and the direction of currency pairs.
On Thursday, President Trump reiterated his intention to implement a 25% tariff on Canada and Mexico effective February 1 but has yet to announce a definitive timeline for tariffs on China. This uncertainty adds to market caution, as a resurgence of trade tensions between the two economic giants could dampen prospects for the New Zealand dollar, particularly given China’s role as a key trading partner.
The US Federal Reserve recently opted to maintain interest rates, with Chair Powell indicating a measured approach to future cuts, contingent on economic conditions such as inflation and employment data. This steadfast policy is expected to bolster the US dollar, potentially creating challenges for NZD/USD in the short term.
In New Zealand, the economic outlook appears grim, as highlighted by the RBNZ’s chief economist, who cited declining productivity, investment, and trade as critical issues. Market anticipations suggest a rate cut of 50 basis points to 3.75% in February, with expectations for rates to eventually dip to around 3.00% within the next year. This dovish perspective from the RBNZ is likely to weigh on the New Zealand dollar moving forward.
