The New Zealand dollar fell to around $0.564 on Thursday, reversing earlier gains as investors turned their attention back to the announcement of new US tariffs.
New Zealand dollar falls, reversing early gains
President Donald Trump’s plan to impose reciprocal tariffs on any country that levies duties on US imports has heightened fears of a deepening global trade war, adding to uncertainty in financial markets. Given New Zealand’s close trade ties with China, markets remain particularly sensitive to developments in Chinese imports and currency movements, which continue to weigh on the Kiwi dollar.
US inflation effect
Additionally, hotter-than-expected US inflation data has reinforced expectations that the Federal Reserve will delay its timeline for rate cuts, pushing traders to scale back bets on early policy easing. Fed Chair Jerome Powell’s recent congressional testimony suggested a cautious approach to monetary easing, signaling that rate cuts may not come as quickly as previously anticipated. This outlook has strengthened the US dollar, putting further pressure on the New Zealand currency.
Eyes on RBNZ moves
Domestically, traders assessed the Reserve Bank of New Zealand’s latest monetary conditions survey, which painted a mixed picture. New Zealand’s two-year inflation expectations eased slightly to 2.06% in Q1 from 2.12% in Q4 2024, suggesting some progress in bringing inflation closer to the central bank’s target range. However, one-year inflation expectations edged higher to 2.15% from 2.05%, indicating that near-term price pressures remain a concern. Investors continued to speculate on the likelihood of further RBNZ rate cuts ahead of next week’s policy meeting, following three cuts last year that lowered borrowing costs to 4.25%. While expectations for additional easing persist, the central bank may adopt a wait-and-see approach as it assesses the impact of past rate adjustments and global economic risks.
