The New Zealand Dollar (NZD) continues to face downward pressure despite the country avoiding direct tariffs from the United States. While the Trump administration’s latest trade measures have targeted key partners like Canada, Mexico, and China, the NZD has struggled, driven by broader economic uncertainty, a strong U.S. dollar, and concerns over global trade.
Trump’s Tariff Announcements and Their Market Impact
On February 4, President Donald Trump announced sweeping tariffs, imposing a 25% duty on imports from Canada and Mexico, along with an additional 10% tariff on Chinese goods, bringing the total levy on China to 20%. The tariffs, which were initially set to take effect immediately, have been delayed by a month following discussions with Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau. However, Trump has reaffirmed that the tariffs will go into effect on March 4, 2025.
New Zealand, notably, has not been included in these tariff measures. The country maintains its existing trade relationship with the U.S., and no new restrictions have been placed on Kiwi exports. However, the indirect effects of Trump’s trade war are weighing on the currency.
NZD Performance in a Steady Decline
Despite the lack of direct tariffs, the NZD has dropped sharply over the past few months. The currency fell 12% in Q4 of 2024, marking one of its worst quarterly performances in recent years. After ending 2024 at 0.5588 against the U.S. dollar, the NZD/USD pair has remained under pressure, recently trading at 0.5625 during the Asian session on February 28—a 0.20% decline on the day. The previous day, the Kiwi dollar slumped 1.12%, breaking key support levels.
Key Factors Behind NZD Weakness
While Trump’s tariffs have created a volatile trading environment, analysts point to several major factors driving the NZD’s decline:
- Global Trade Uncertainty – New Zealand is highly exposed to international trade, and fears of a widening trade war are dampening market sentiment. Canada, Mexico, and China have already threatened retaliatory tariffs, raising concerns about slowing global economic growth.
- China’s Economic Slowdown – China is New Zealand’s largest trading partner, and the tariffs on Chinese goods indirectly affect Kiwi exporters. Beijing has taken stimulative measures, such as injecting CNY300 billion through its Medium-term Lending Facility (MLF), but uncertainty remains.
- Stronger U.S. Dollar – The U.S. economy grew at a 2.3% annualised rate in Q4, in line with expectations. This has supported the U.S. dollar, pushing the NZD lower. Additionally, Federal Reserve officials have signalled caution on rate cuts, bolstering the USD’s appeal.
- Reserve Bank of New Zealand (RBNZ) Rate Expectations – Economists predict the RBNZ will cut rates by 25 basis points (bp) in April and May, further diminishing the NZD’s attractiveness to investors.
- Risk-Off Sentiment – Investors are shifting away from risk-sensitive currencies like the NZD, instead favouring the U.S. dollar and other safe-haven assets.
How NZD Weakness Affects New Zealand
The depreciation of the NZD has both negative and positive implications for New Zealand’s economy.
On the downside, export revenues may decline as global demand softens. KiwiSaver balances and stock market investments are already experiencing volatility, with New Zealand-based companies like Fisher & Paykel Healthcare warning of increased costs due to their reliance on Mexican manufacturing.
However, there are some short-term benefits. New Zealand’s beef exporters could gain a competitive edge as U.S. tariffs make Canadian and Mexican beef more expensive. Similarly, Chinese manufacturers may offer lower prices on goods, which could benefit Kiwi consumers.
What’s Next for the NZD?
Looking ahead, analysts warn of further downside risks in the first half of 2025. The key factors to watch include:
- Escalating trade tensions between the U.S. and China
- RBNZ’s upcoming monetary policy decisions
- Global risk sentiment and economic growth trends
While some economists believe the NZD could stabilise later in the year, others caution that any recovery will depend on whether Trump expands his tariff regime or global trade tensions ease.
Conclusion
Despite New Zealand’s exemption from U.S. tariffs, the NZD remains under pressure due to broader market concerns. Investors are closely watching the next moves from Trump, the RBNZ, and China as the economic landscape remains uncertain.