Trade War’s Effect on the New Zealand Dollar

The New Zealand Dollar dropped below 0.5700, hitting a five-month low of 0.5684. This decline is tied to rising tensions between the US and China, which are affecting the NZD. It follows the Reserve Bank of New Zealand’s (RBNZ) choice to cut its Official Cash Rate (OCR) by 50 basis points last week. The ongoing trade tensions between China and the US have caused the NZD/USD to fall for six consecutive days. New cargo fees between the two countries are raising worries about a worsening trade war. China’s Commerce Ministry is hoping to settle the issues through conversation, urging the US to change its approach. This is happening amidst worries about the stability of global supply chains. These trade worries are adding more pressure to the New Zealand Dollar, already weakened by the recent rate cut. The trade war between the US and China has introduced major barriers and tariffs that are raising global costs. Tensions renewed with Donald Trump’s return as US President, leading to a 60% tariff on China. This has reignited the trade dispute, influencing global supply chains and increasing inflation as noted by the Consumer Price Index. With the New Zealand Dollar now below 0.5700, we see a clear downward trend. This decline is fueled by ongoing fears of a US-China trade war and the RBNZ’s recent 50 basis point rate cut. The drop to a five-month low indicates that the Kiwi is likely to continue falling.

Effects of US Federal Reserve and RBNZ Policies

This situation is similar to the trade war from 2018-2019 when the NZD/USD dropped over 15% due to rising geopolitical tensions. Given that new tariffs have been in effect since January 2025, we should expect increased volatility in the coming weeks. Derivative traders should prepare for the possibility of sudden price changes as new developments arise. The RBNZ’s unexpected rate cut has created a significant difference in policy compared to the US Federal Reserve, which has kept rates steady to manage inflation, still at 3.2% as of last quarter. This growing gap in interest rates makes US dollars more attractive, putting pressure on the NZD. The market is now anticipating at least one more rate cut from the RBNZ by early 2026. For traders, this environment is better suited for strategies that profit from a declining NZD/USD and increasing implied volatility. Buying put options on the Kiwi provides a direct way to bet on further declines, with limited risk. There are also chances to profit by selling out-of-the-money call spreads, taking advantage of those who believe in an unlikely rebound. It’s important to note that the NZD serves as a proxy for China’s economy. Almost 30% of New Zealand’s exports, especially dairy and forestry products, go to China. Recent data from September 2025 showed a 5% drop in Chinese port activity due to the new shipping fees. Any further hiccup in this trade will likely lead to even more weakness for the Kiwi dollar. Looking forward, we will keep a close eye on upcoming Chinese manufacturing PMI data and possible retaliatory measures from Beijing. A weak PMI reading could confirm the damaging effects of US tariffs, potentially causing another decline in the NZD/USD. Traders should stay alert, as policy announcements from either Washington or Beijing could quickly change the situation. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now