New Zealand dollar price plunges to multi-year low as trade war fears escalate
Kiwi tumbles as US tariffs, weak Chinese data fuel downside pressure
The New Zealand dollar (NZD/USD) fell to its lowest level since March 2020, dropping 2% to around 0.5530 on Monday, as the threat of a global trade war and weak Chinese economic data weighed on risk sentiment. The latest sell-off comes after U.S. President Donald Trump imposed tariffs on Canada, Mexico, and China, with the affected countries promising retaliatory measures.
The move has strengthened the U.S. dollar (USD) as investors flock to safe-haven assets, putting additional pressure on the kiwi.
NZD/USD price dynamics (Dec 2024 - Feb 2025) Source: TradingView.
US tariffs spark trade war fears
The latest tariff measures from the Trump administration, set to take effect on Tuesday, have intensified concerns of a wider global trade war. China responded swiftly, stating it would challenge the tariffs at the World Trade Organization (WTO). Market participants fear that the dispute could further disrupt global supply chains, denting economic growth and risk-sensitive assets such as the New Zealand dollar.
Meanwhile, the US dollar continues to gain momentum, fueled by safe-haven demand and hawkish expectations from the Federal Reserve (Fed). With Trump’s aggressive trade stance, traders are reassessing monetary policy expectations, with the US Fed expected to hold rates higher for longer to counter inflation risks stemming from the tariffs.
Weak Chinese data and RBNZ rate cuts add pressure
Further weighing on the New Zealand dollar is the latest Chinese Caixin Manufacturing PMI, which came in at 50.1 for January, below the expected 50.5. The weaker-than-expected data highlights a slowdown in China’s manufacturing sector, raising concerns about New Zealand’s export-driven economy, which relies heavily on trade with China.
Additionally, the Reserve Bank of New Zealand (RBNZ) is widely expected to cut interest rates by 50 basis points (bps) to 3.75% at its upcoming February 19 meeting, with further easing projected to bring rates down to 3.00% over the next year. A dovish RBNZ outlook, combined with a strengthening USD, has exacerbated NZD’s recent declines, keeping the currency under pressure.
Market outlook: Downside risks persist
The outlook for NZD/USD remains bearish, as trade tensions, a weaker Chinese economy, and RBNZ rate cut expectations continue to weigh on the currency. A break below 0.5500 could open the door for further downside, with the next support levels seen near 0.5450 and 0.5400. However, a resolution in trade negotiations or stronger-than-expected Chinese economic data could provide some relief for the struggling kiwi.
In our previous analysis, we noted the impact of U.S. trade policies and RBNZ rate cut expectations on NZD/USD. The latest developments reinforce this outlook, with mounting trade tensions and slowing Chinese growth keeping the currency under pressure.
