The New Zealand dollar climbed to approximately $0.566 on Wednesday, extending gains from the previous session as the US dollar weakened under growing tariff tensions. Market sentiment shifted after the United States implemented a 10% tariff on Chinese goods, prompting Beijing to respond with its own retaliatory measures against selected US products.

Investors are closely monitoring developments between US President Donald Trump and Chinese President Xi Jinping, as uncertainty looms over whether a meeting will take place. Previous last-minute negotiations have led to temporary tariff reprieves, such as those seen with Canada and Mexico, raising hopes for a potential de-escalation of trade disputes.

Despite the Kiwi’s strength, New Zealand’s domestic economy showed signs of strain. The currency largely shrugged off weak labor market data, reinforcing market expectations that the Reserve Bank of New Zealand will cut interest rates by 50 basis points later this month. The country’s unemployment rate climbed to 5.1% in Q4, the highest level since Q3 2020, underscoring economic headwinds.

Adding to the pressure, weaker-than-expected services activity data from China—New Zealand’s largest trading partner—further highlighted risks to the Kiwi. A slowdown in China’s economy typically weighs on New Zealand’s exports, which are heavily reliant on Chinese demand.

With ongoing trade tensions and economic uncertainty, traders remain cautious about the near-term outlook for the New Zealand dollar. However, a potential breakthrough in US-China negotiations or shifts in Federal Reserve policy could influence currency movements in the coming weeks.