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VT 
Trade War Impact on New Zealand Dollar
The New Zealand Dollar fell below 0.5700, reaching five-month lows at 0.5684. This drop is influenced by rising tensions between the US and China, impacting the NZD. The decline follows the RBNZ’s decision to cut its OCR rate by 50 bps last week.
The Sino-US trade tensions continue to affect the NZD/USD, which is declining for the sixth day in a row. The tensions have been exacerbated by new fees on cargo vessels between the two nations, sparking fears of trade war escalation.
China’s Commerce Ministry expressed hope to resolve issues through dialogue, urging the US to amend its actions. This comes amid concerns over global supply chain stability.
These trade concerns add pressure on the New Zealand Dollar already weakened by the recent interest rate cut. The economic conflict between the US and China, known as the trade war, involves significant trade barriers and tariffs affecting global costs.
Tensions renewed with Donald Trump’s return as US President, as he imposed 60% tariffs on China. This has reignited the trade dispute, influencing global supply chains and increasing Consumer Price Index inflation.
With the New Zealand Dollar breaking below the 0.5700 level, we see a clear downtrend solidifying. This weakness is being driven by the combination of renewed US-China trade fears and last week’s aggressive 50 basis point rate cut by the Reserve Bank of New Zealand (RBNZ). The current move to a five-month low suggests momentum is firmly to the downside for the Kiwi.
Impact of US Federal Reserve and RBNZ Policies
This situation is reminiscent of the 2018-2019 trade war, a period where the NZD/USD fell over 15% as geopolitical tensions escalated. Given that new tariffs have been in place since January 2025, we should anticipate volatility to increase in the coming weeks. Derivative traders should be pricing in a higher probability of sharp, sudden moves as new headlines emerge.
The RBNZ’s surprise rate cut creates a significant policy divergence with the US Federal Reserve, which has held rates steady to contain inflation that was still running at 3.2% as of the last quarter. This widening interest rate differential makes holding US dollars more appealing and weighs heavily on the NZD. The market is now factoring in at least one more rate cut from the RBNZ by early 2026.
For traders, this environment favors strategies that profit from a falling NZD/USD and rising implied volatility. Buying put options on the Kiwi offers a direct way to speculate on further declines with a defined risk. We also see opportunities in selling out-of-the-money call spreads to collect premium from traders who are betting on an unlikely reversal.
We must remember why the NZD is considered a proxy for China’s economy; nearly 30% of New Zealand’s total exports, particularly dairy and forestry products, are destined for China. Recent data from September 2025 showed a 5% month-over-month drop in Chinese port activity, a direct result of the new shipping fees. Any further disruption to this trade flow will immediately translate into more weakness for the Kiwi dollar.
Looking ahead, we will be closely watching upcoming Chinese manufacturing PMI data and any retaliatory announcements from Beijing. A weak PMI figure would confirm the negative impact of US tariffs, likely triggering another leg down in the NZD/USD. Traders should remain nimble, as policy announcements from either Washington or Beijing could shift the landscape quickly.
