NZD/USD Forecast: China Tariff Shift Adds Twist to Outlook

Overview

The recent US Supreme Court ruling has altered the tariff landscape for China, coinciding with unexpected strength in New Zealand's retail sector. As the NZD/USD consolidates near significant levels, the Chinese Yuan (CNH) is becoming increasingly relevant for Kiwi traders.

New Zealand Retail Spending

New Zealand's household sector has shown resilience, with retail sales in Q4 rising by 0.9%, surpassing expectations of 0.6%. This marks the fifth consecutive quarter of growth, with sales volumes over 4% higher than the previous year. Nominal spending also increased by 1.4% quarterly and nearly 5% annually, indicating that households are purchasing more rather than just facing higher prices.

The growth has been driven primarily by discretionary spending in categories such as electronics, furniture, and hospitality, which are sensitive to interest rate changes.

RBNZ Policy Outlook

Despite existing slack in the labor market, the strengthening household demand could prompt the Reserve Bank of New Zealand (RBNZ) to consider tightening monetary policy sooner than previously indicated. Current market expectations suggest a potential rate hike could occur as early as October, although the general election in November may complicate this timeline.

Impact of US Supreme Court Ruling

The Supreme Court's ruling has reduced China's average tariff burden, despite a new 15% global tariff announced by Donald Trump. This change is significant for New Zealand, as China is its largest trading partner. Any improvement in Chinese economic activity could positively influence New Zealand's growth and currency.

Market Dynamics and Currency Correlation

The relationship between NZD/USD and USD/CNH is crucial for traders. Historical data shows varying correlations, suggesting that while the Yuan's performance should be monitored, it should not be the sole basis for trading decisions.

Current Market Sentiment

As of now, the US dollar is under pressure following the tariff ruling, which has led to renewed interest in the NZD/USD pair. The market appears to be favoring buying on dips, with key resistance levels at 0.6000 and 0.6093, while support is noted around 0.5950 and 0.5925.

Overall, the outlook for NZD/USD remains cautiously optimistic, with traders advised to remain vigilant of external factors influencing market dynamics.