Market Data 
- NZD/USD jumps strongly to near 0.5700 as US President Trump signaled that he could reach a deal with China.
- Trump’s assumption of making a deal with China without imposing tariffs has diminished the risk-premium of the US Dollar.
- The Fed is unlikely to be impacted by Trump’s call for immediate rate cuts.
The NZD/USD pair soars slightly above the key level of 0.5700 in Friday’s European session. The Kiwi pair strengthens amid an improvement in appeal of antipodeans after comments from United States (US) President Donald Trump in an interview with Fox News on Thursday signaled that the nation could reach to a deal with China without using tariffs.
Donald Trump said that he discussed an array of issues with China, including TikTok, trade, and Taiwan before returning to the White House. He added, “It was a good, friendly conversation,” and a trade deal can be achieved “without exercising tariffs”.
During the inauguration ceremony, Trump threatened to impose 10% tariffs on China and 25% on Mexico and Canada.
Trump’s soft tone with China has improved the New Zealand Dollar’s (NZD) appeal, given that New Zealand (NZ) is one of the leading trading partners of China.
Meanwhile, Trump’s friendly talk with China has diminished risk premium of the US Dollar (USD), which had a strong run in last few months. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, tumbles to near 107.55, the lowest level in almost a month.
The Greenback has also faced selling pressure from Trump’s speech at the World Economic Forum (WEF) in Davos, in which he endorsed the need for immediate interest rate cuts. With oil prices going down, I’ll demand that interest rates drop immediately, and likewise, they should be dropping all over the world,” Trump said.
Trump’s comments are unlikely to impact the Federal Reserve’s (Fed) monetary policy stance, as the Fed is an independent body.
New Zealand Dollar FAQs
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.
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.
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.
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.
