NZD/USD remains below 0.5700 as deflationary pressures deepen in China
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Akhtar Faruqui
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11 Mar @ 03:48 (GMT+0)

NZD/USD remains below 0.5700 as deflationary pressures deepen in China

  • NZD/USD declines as the New Zealand Dollar comes under pressure from deepening deflationary concerns in China.
  • The NZD weakened amid escalating global trade tensions after China’s retaliatory tariffs on US agricultural products took effect on Monday.
  • US growth concerns grew after President Donald Trump described it as being in a "transition period," signaling a potential slowdown.

NZD/USD extends its losing streak for the third successive day, trading around 0.5690 during the Asian hours on Tuesday. The pair continues to lose ground as the New Zealand Dollar (NZD) faces headwinds due to deflationary pressures deepened in China, highlighted by the steepest fall in consumer prices in 13 months in February and the 29th straight month of drop in factory-gate prices. Given China’s status as New Zealand’s largest trading partner, these developments have weighed on market sentiment.

Additionally, the NZD faced challenges as rising global trade tensions dampened investors’ risk appetite. China's retaliatory tariffs of up to 15% on certain US agricultural products went into effect on Monday, in response to last week's US tariff increase from 10% to 20% on Chinese imports.

However, the downside of the NZD/USD pair could be restrained as the US Dollar (USD) struggles amid concerns that tariff policy uncertainty could push the US economy into recession. US President Donald Trump characterized the economy as being in a "transition period," hinting at a potential slowdown. Investors took his remarks as an early signal of possible economic turbulence in the near future.

Fed Chair Jerome Powell reassured markets that the central bank sees no immediate need to adjust monetary policy despite rising uncertainties. San Francisco Fed President Mary Daly echoed this sentiment, noting that increasing business uncertainty could dampen demand but does not justify an interest rate change.

With the Federal Reserve entering its blackout period ahead of the March 19 meeting, central bank c

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.

ommentary will be limited this week. Investors are now looking ahead to February’s Consumer Price Index (CPI) release on Wednesday for further insights into inflation trends.