The NZD/USD currency pair printed an optimistic figure during the Asian peer review hours on Thursday, approaching the 0.5900 deal. The market is up today, currently up 0.10%. This bullish push is powered in no small part by the enthusiasm surrounding the newly announced US/China tariff agreement. As the China-proxy Kiwi catches on, it largely drives the NZD/USD to be the largest driver of the NZD/USD exchange rate.
The first catalyst for this spike in worth is the positive indicators that the US-China commerce warfare is being resolved. That continuing positive change is improving optimism throughout the marketplace. The performance of the Chinese economy directly impacts New Zealand due to its status as the country’s largest trading partner. As a result, any bad economic news from China would likely reduce demand for New Zealand’s exports, which would negatively impact the NZD/USD pair.
Tariff Deal Fuels Optimism
That’s why on Wednesday, the US and China reached a temporary agreement to reduce some reciprocal tariffs. Earlier, this step relieves fears of an impending Sino-American trade war between the two countries’ economic heavyweights. Under this improved arrangement, the US has reduced anti-China tariffs on Chinese imports from 145% to only 30%. At the same time, China slashed tariffs on US exports to China from 125% to 10%. This change is scheduled to be permanent for just 90 days and has produced enthusiasm in the capital markets.
Traders are looking out for how these new developments will shape market dynamics going forward, especially with respect to the NZD/USD pair. The tariff reductions suggest a thawing of the icy relations between the two countries may be in order. This change would significantly promote trade activity and regional economic prosperity by increasing the capacity for economic growth.
Consequently, the NZD/USD currency pair reacted favorably to this development. The high value of the New Zealand dollar is usually a sign that the Chinese economy is booming. This close relationship is partly due to New Zealand’s economic dependence on exports, especially exports to China. Having seen progress on trade relations, traders are feeling a modestly optimistic breeze blowing through the skies of US-China economic engagement.
Impact of Macroeconomic Data
For both the US and New Zealand, traders are looking forward to these key macroeconomic data releases. They are equally intent on the tariff agreement. Coming late on Thursday will be the key US April Retail Sales and Producer Price Index (PPI) data. These numbers will undoubtedly provide significant snapshots of the current landscape of the US economy as we know it today. These figures could play a significant role in shaping expectations regarding future interest rate movements set by the US Federal Reserve.
San Francisco Fed President Mary Daly expressed that the current strength of the US economy allows policymakers to remain patient while evaluating how President Trump’s policies will affect businesses and households. This hawkish view may further boost the bullish outlook of the market and thereby drive NZD/USD higher.
Macroeconomic indicators out of New Zealand proper will be key to understanding the economic impacts of such a change. Any positive data in support of New Zealand’s economic recovery would only serve to increase confidence in the NZD/USD pair. Conversely, unfavorable signs could lead to a decrease in value.
Interest Rates and Market Sentiment
The rate differential — the difference between what New Zealand pays and the United States pays — is key. After all, it has a direct impact on the value of NZD/USD. Traders cast their nets widely to catch interest rate currents. They look for hints at whether or not New Zealand’s own hiking of the rate will compare to those expected from the US Federal Reserve.
A possible change in interest rates can have major effects on currency values almost immediately. If the Reserve Bank of New Zealand signals an intention to raise rates while the Federal Reserve maintains or lowers rates, it could lead to an appreciation of the NZD against the USD. If US rates increase, while New Zealand’s rates remain the same or decrease, then the NZD/USD cross could weaken. This change in policy and rates will re-shape the currency exchange dynamics.
What traders are most attuned to is the reality that economices at home and abroad will likely shape this dynamic turning the other way. They watch for signs of weakening policy from either central bank. These changes can reshape what’s expected in the market and drive market behavior.