NZD/USD holds above 0.5750 as February's Trade Balance swings to surplus
- NZD/USD inches higher following New Zealand’s Trade Balance data on Friday.
- New Zealand’s Trade Balance showed a surplus of $510 million in February, reversing the previous month’s $544 million deficit.
- The pair’s upside may be limited as the US Dollar (USD) remains firm amid growing risk aversion.
- However, the pair’s upside may be limited as the US Dollar (USD) remains firm amid growing risk aversion.
NZD/USD pauses its three-day losing streak, trading around 0.5760 during European hours on Friday. The New Zealand Dollar (NZD) found little support following New Zealand’s trade balance data, which showed a surplus of $510 million in February, reversing the previous month’s $544 million deficit. Data released on Friday showed that goods exports surged 16% to $6.74 billion, while imports saw a modest 2.1% increase to $6.23 billion.
Although New Zealand’s economy has emerged from recession, underlying weaknesses persist. Markets continue to anticipate policy easing, with expectations of around 60 basis points (bps) in rate cuts—equivalent to two or three reductions—by the end of the year.
However, the upside of the NZD/USD pair may be capped as the US Dollar (USD) remains firm amid rising risk aversion driven by escalating global trade tensions linked to US tariff policies. Federal Reserve (Fed) Chair Jerome Powell downplayed the inflationary impact of tariffs, calling them temporary, but acknowledged the broader economic uncertainty they create.
On the US data front, Initial Jobless Claims rose to 223K for the week ending March 15, slightly below the 224K forecast but exceeding the prior week’s revised 221K. Meanwhile, the Philadelphia Fed Manufacturing Survey for March dropped to 12.5 from February’s 18.1, marking a second consecutive monthly decline but remaining above the expected 8.5.
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.
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