Kiwi edges higher as trade tensions ease
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Daily Currency Update
The New Zealand dollar (NZD) is inching higher against its US counterpart in early Asian trading on Monday, with the NZD/USD pair rising toward US$0.5740. The modest gains come as market sentiment improves on hopes that the United States may take a more measured approach in its ongoing trade tensions with China.Investors appear cautiously optimistic that the latest round of escalation in the US-China trade dispute could cool, providing some breathing room for risk-sensitive currencies like the Kiwi. As China is New Zealand’s largest trading partner, the NZD is often viewed as a “China-proxy” in the currency markets, closely tracking developments tied to Chinese economic health or global trade conditions. This easing of trade-related anxiety has provided a lift for the NZD at the start of the week, even as underlying challenges for the currency remain.
One of the biggest headwinds facing the Kiwi is the increasingly dovish tone from the Reserve Bank of New Zealand (RBNZ). Just last week, the central bank surprised markets with a larger-than-expected interest rate cut, slashing the official cash rate by 50 basis points, bringing it down to 2.50%. Policymakers also signalled that further cuts are on the table, citing the need to support the economy in the face of slowing global growth and subdued inflation pressures.
Market expectations now point to the likelihood of another rate reduction at the RBNZ’s next policy meeting in November. Current pricing suggests a 25-basis-point cut is almost fully baked in, which would take the official cash rate down to 2.25%. While lower interest rates are generally aimed at boosting domestic demand and investment, they can make a country’s currency less attractive to global investors seeking higher returns, especially when compared to the US dollar, which remains supported by relatively high Treasury yields and a still-hawkish Federal Reserve.
Meaning, the Kiwi’s recent rebound could prove short-lived unless there’s a more substantial improvement in global risk appetite or a shift in expectations around New Zealand’s monetary policy outlook. For now, though, the NZD is finding some short-term support from a calmer tone in international trade relations. Traders will be keeping a close eye on developments between the US and China, as well as key economic data out of both countries, for further clues on the next move.
Key Movers
The US dollar (USD) found some support around the 98.80 level after retreating from the mid-99.00s on Friday, as market jitters followed President Trump’s threat to impose 100% tariffs on Chinese goods. The announcement added to an already tense environment for global markets, contributing to a wave of risk aversion and currency volatility.The US Dollar Index (DXY), which measures the Greenback against a basket of major currencies, pared back some of its recent losses on Monday. However, the index is struggling to firmly reclaim and hold above the 99.00 threshold, with trading conditions remaining choppy across major currency pairs. Mixed economic signals, ongoing geopolitical tensions and an increasingly uncertain domestic political landscape are all keeping investors on edge.
One significant source of that uncertainty is the ongoing US federal government shutdown, which has now entered its third week with little sign of a resolution. The prolonged impasse is adding to concerns about potential disruptions to economic activity and public services, further clouding the near-term outlook for the US economy. Against this backdrop, market expectations for further easing by the Federal Reserve have continued to solidify.
Investors are now almost fully pricing in a 25-basis-point interest rate cut at the Fed’s late October policy meeting, with a strong chance of another cut before the end of the year, possibly in December. The shift in rate expectations reflects both slowing global growth and mounting domestic headwinds. All eyes will be on Federal Reserve Chair Jerome Powell, who is scheduled to speak on Thursday.
Market participants will be listening closely for any signals about the central bank’s future policy direction, especially in light of rising recession risks and persistent inflationary pressures. Powell’s comments could provide critical clues about whether the Fed will stick to its current cautious path, or take more aggressive steps to support the economy.
Until then, the USD is likely to remain sensitive to headlines, especially those related to US-China trade tensions, fiscal negotiations in Washington, and upcoming economic data releases.
Expected Ranges
- NZD/USD: 0.5650 - 0.5850 ▼
- NZD/EUR: 0.4850 - 0.5050 ▼
- GBP/NZD: 2.3200 - 2.3400 ▲
- NZD/AUD: 1.1300 - 1.1500 ▼
- NZD/CAD: 0.7950 - 0.8150 ▼