New Zealand Dollar is undermined by US-China trade uncertainty
- NZD/USD kicks off the new week on a softer note amid the US-China trade uncertainty.
- Rising Fed rate cut bets prompt fresh USD selling and lend support to the currency pair.
- A positive risk tone further benefits the Kiwi and helps limit the downside for spot prices.
The NZD/USD pair ticks lower at the start of a new week and moves further away from over a one-week top touched on Friday, though it lacks follow-through selling. Spot prices currently trade around mid-0.5900s, down less than 0.10% for the day, amid mixed fundamental cues.
The uncertainty over the US-China tariff truce, which is due to expire on August 12, is seen as a key factor acting as a headwind for antipodean currencies, including the Kiwi. Investors, however, remain hopeful about a positive outcome, which, along with a generally positive tone around the equity markets, further lends support to the risk-sensitive New Zealand Dollar (NZD). Apart from this, the emergence of fresh US Dollar (USD) selling helps limit the downside for the NZD/USD pair.
Investors seem convinced that the US Federal Reserve (Fed) will resume its rate-cutting cycle in September and deliver at least two 25-basis-points (bps) rate cuts by the end of this year. The bets were lifted by the July Nonfarm Payrolls (NFP) report, which pointed to a deteriorating US labor market, and the recent comments from influential FOMC members. This, in turn, fails to assist the USD to capitalize on Friday’s modest bounce from a two-week low and favors the NZD/USD bulls.
Traders, however, seem reluctant to place aggressive bets and opt to wait for the release of the latest US inflation figures – the Consumer Price Index (CPI) and the Producer Price Index (PPI) on Tuesday and Thursday, respectively. Apart from this, the focus will be on the US-Russia bilateral talks on ending the war in Ukraine on Friday. This, in turn, will influence the broader risk sentiment and provide some meaningful impetus to the NZD/USD pair during the latter part of the week.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.