International Trade Tensions

Trade tensions between the US and China are putting pressure on the New Zealand Dollar. President Trump has set 25% tariffs on certain semiconductors and essential minerals. However, recent trade data from China is easing worries about the effects of these tariffs, which helps stabilize the New Zealand Dollar. Moreover, President Trump has stated he will not replace Fed Chair Jerome Powell, easing prior concerns in the market. Investors are now looking ahead to the upcoming US jobless claims data and speeches from Federal Reserve officials to assess the economy’s direction. Today’s figures show the New Zealand Dollar gaining strength against the British Pound but only changing slightly against other major currencies. The USD remains strong as fears about the independence of the Federal Reserve diminish. In late 2025, the NZD/USD pair hovered around 0.5740, affected by a strong US economy and ongoing trade tensions. Back then, strong US retail sales and producer price inflation at 3% led us to believe that the Federal Reserve would keep interest rates high, keeping pressure on this currency pair.

Fed and RBNZ Divergence

Today, the situation has changed, making the case for Kiwi strength stronger. The Fed’s previous stance of keeping rates high for a long time has shifted towards easing, as core inflation has dropped to 2.4%, and recent job data showed slower wage growth. Meanwhile, the Reserve Bank of New Zealand (RBNZ) is maintaining its Official Cash Rate at 5.5%, citing ongoing inflation at home. This growing difference in policies—a dovish Fed and a hawkish RBNZ—creates a supportive environment for the NZD/USD pair. Even with ongoing US-China trade issues, recent data shows that China’s economy is stabilizing. Its Caixin Manufacturing PMI has remained above 50 for three straight months, signaling growth. This stability in New Zealand’s largest trading partner eases concerns that negatively affected the Kiwi last year. For derivative traders, this suggests positioning for more upside in the NZD/USD from its current level of around 0.6180. Buying call options with strike prices near 0.6300 for the upcoming months is a way to benefit from this expected rise while keeping a defined risk. Since implied volatility has decreased since the high levels during the 2024 US elections, option premiums are now more affordable. Another strategy is to sell out-of-the-money put options to gain premium, as this reflects a belief that the pair has limited downside. For instance, selling a put option with a strike price of 0.6000 leverages the view that strong RBNZ policy will support the currency. This strategy benefits from both time decay and a stable or higher NZD/USD exchange rate. Create your live VT Markets account and start trading now.

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