NZD/USD rises to near 0.5750 as US Dollar softens amid improved risk sentiment
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Akhtar Faruqui
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06 Mar @ 02:32 (GMT+0)

NZD/USD rises to near 0.5750 as US Dollar softens amid improved risk sentiment

  • NZD/USD extends its winning streak due to improved risk sentiment.
  • White House announced that automakers will be temporarily exempt from newly imposed tariffs on Mexico and Canada for one month.
  • China’s spokesperson stated that China is prepared to fight "any type" of war in response to escalating trade tariffs.

NZD/USD continues its upward momentum for the fourth consecutive session, trading around 0.5730 during Asian hours on Thursday. The pair benefits from a subdued US Dollar (USD) amid improved risk sentiment, driven by another shift in US President Donald Trump’s tariff strategy.

On Wednesday, the White House announced that Trump is temporarily exempting automakers from newly imposed tariffs on Mexico and Canada for one month. Additionally, reports from Bloomberg suggest he is also considering excluding certain agricultural products from tariffs on these countries.

The US Dollar Index (DXY), which measures the USD against six major currencies, is hovering around 104.30 at the time of writing. The Greenback remains under pressure following weaker-than-expected US private payroll data, raising concerns about slowing economic momentum in the United States (US).

The ADP Employment Change report for February showed just 77K new jobs, significantly below the 140K forecast and well under January's 186K reading. Market participants are now focused on Friday’s US Nonfarm Payrolls (NFP) report, which is expected to indicate a moderate recovery in job growth. Forecasts suggest net job additions will rise to 160K in February, up from January’s 143K.

However, further upside for NZD/USD could be limited by lingering geopolitical concerns. A Chinese foreign ministry spokesperson stated late Wednesday that China is prepared to fight "any type" of war in response to Trump’s escalating trade tariffs, according to the BBC. Given China’s status as New Zealand’s largest trading partner, such tensions could weigh on the New Zealand Dollar (NZD).

Traders are also closely monitoring domestic economic developments following the unexpected resignation of Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr, who stepped down with three years remaining in his term without citing a reason. Orr’s departure leaves the central bank without a permanent leader amid the country’s worst economic downturn in three decades.

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.