- The NZD/USD weakens up to about 0.5635 in the Asian session on Tuesday.
- Trump raised the tariffs to aluminum and 25% steel, from a previous 10%.
- The RBNZ is expected to deliver a third cut of large rates consecutively at the end of this month.
The NZD/USD PAR is still under selling pressure around 0.5635 during the Asian session on Tuesday. Concerns about possible commercial wars under the administration of US President Donald Trump continue to undermine the New Zealand dollar (NZD). Later on Tuesday, the semiannual testimony of the president of the Federal Reserve (FED), Jerome Powell, will be at the Center for Care.
Trump said Sunday that he will announce new 25% tariffs on all imports of steel and aluminum to the United States on Monday, which would affect “all”, including its main commercial partners, Canada and Mexico.
New Zealand finance minister Nicola Willis said: “New Zealand is distinguished in that we have a very balanced and complementary commercial relationship with the United States.” Willis added that he hopes to maintain a warm relationship with the United States in the future. Investors will closely follow developments around new tariff policies. Any sign of climbing in the tensions of the commercial war could drag the Kiwi down against USD.
In addition, the growing expectation that the New Zealand Reserve Bank (RBNZ) will deliver a third cut of large rates consecutively at the end of this month contributes to the decline of the NZD. Markets have discounted almost 92% probability that RBNZ makes a reduction of 50 basic points (PBS) on February 19.
RBNZ FAQS
The New Zealand Reserve Bank (RBNZ) is the Central Bank of the country. Its economic objectives are to achieve and maintain the stability of prices – won when inflation, measured by the consumer price index (CPI), falls within the range of between 1% and 3% – and support the maximum sustainable employment.
The Monetary Policy Committee (MPC) of the New Zealand Reserve Bank (RBNZ) decides the appropriate level of the official cash rate (OCR) according to its objectives. When inflation is above the objective, the bank will try to control it by raising its key, making money borrowing for homes and companies and cooling the economy. The highest interest rates are generally positive for the New Zealand dollar (NZD), since they generate greater returns, which makes the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken the NZD.
Employment is important for the New Zealand Reserve Bank (RBNZ) because an adjusted labor market can feed inflation. The objective of the “maximum sustainable employment” is defined as the greatest use of labor resources that can be maintained over time without creating an acceleration of inflation. “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the sustainable maximum level for too long, it will eventually cause prices to increase more and more quickly, which will require the MPC to increase interest rates to maintain inflation under control, ”says the bank central.
In extreme situations, the New Zealand Reserve Bank (RBNZ) can implement a monetary policy tool called quantitative flexibility. The QE is the process by which the RBNZ prints local currency and uses it to buy assets (generally government or corporate bonds) of banks and other financial institutions with the objective of increasing the internal money supply and stimulating economic activity. The qe generally results in a neo -Zealand dollar (NZD) weaker. The QE is a last resort when it is unlikely that simply lowering interest rates achieve the objectives of the Central Bank. The RBNZ used it during the Covid-19 Pandemia.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
