Dollar strengthens amid Ukraine tensions, New Zealand dollar declines due to central bank's rate cuts

The U.S. dollar remained strong on Wednesday due to concerns over tariffs and tense negotiations between Russia and Ukraine, while the New Zealand dollar decreased following a significant interest rate reduction by its central bank.

 

The Reserve Bank of New Zealand cut its key interest rate by 50 basis points to 3.75% on Wednesday, as widely anticipated. This marks a total reduction of 175 basis points since August as the central bank attempts to stimulate a lagging economy and address rising unemployment.

 

The kiwi currency was last down 0.3% at $0.5687 after the rate decision and subsequent comments from the bank indicating potential future cuts.

 

In the broader market, investors evaluated the recent developments in U.S. President Donald Trump's ongoing tariff measures and the uncertainty following the conclusion of initial Russia-Ukraine peace talks, which excluded Kyiv and Europe.

 

A majority of economists surveyed by Reuters this month anticipate another 50-basis-point cut in April.

 

Ukraine's President Volodymyr Zelenskiy asserted that no peace agreement could be made without his involvement. He postponed his trip to Saudi Arabia, originally planned for Wednesday, to March 10 to avoid legitimizing U.S.-Russia discussions.

 

Russia has toughened its stance, specifically demanding assurance that NATO will not grant membership to Kyiv.

 

The Trump administration announced on Tuesday that further discussions with Russia on resolving the war in Ukraine were agreed upon.

 

Expectations of a peace deal had driven the euro to a two-week high last week; however, the EU currency has dropped in recent days, last recorded 0.03% lower at $1.0442.

 

"The euro seems slightly unsettled by the evident differences between the U.S. and Europe over the conflict in Ukraine," commented Sean Callow, senior FX analyst at InTouch Capital Markets.

 

The dollar rose on Tuesday, buoyed by the euro's softness, yet it remains close to a two-month low of 106.56 hit on Friday despite ongoing tariff commitments.

 

Trump announced on Tuesday his intention to apply auto tariffs "in the vicinity of 25%" along with similar duties on semiconductor and pharmaceutical imports.

 

"As long as Trump is perceived as unreliable regarding tariffs, substantial USD long positions will be challenged," Callow remarked.

 

Trump's administration has consistently issued tariffs and threats of tariffs in the initial month of his presidency, creating uncertainty about their domestic and international effects.

 

Investors were awaiting the release of the Federal Reserve's January meeting minutes later that day for insights into policymakers' assessments of the risks associated with a global trade war.

 

Markets have factored in approximately 35 basis points of cuts for 2025.

 

The dollar index, assessing the greenback against a collection of rival currencies, increased by 0.04% to 107.04.

 

The yen gained 0.05% to 152 per dollar. Japan's strong GDP data for October to December released on Monday, along with recent robust inflation figures, have bolstered expectations for rate hikes.

 

The likelihood of a rate hike at the Bank of Japan's July meeting is increasing, yet uncertainties about the speed and scope of continuous tightening remain.

 

The focus will be on board member Hajime Takata, who is slated to deliver remarks on Wednesday, and the release of national CPI data on Friday.

 

Sterling remained steady at $1.2613 after touching a two-month high of $1.2641 in early trading on Wednesday. An inflation report for the UK is due later on Wednesday, following Tuesday's data indicating accelerating British wage growth.

 

The Australian dollar edged down 0.07% to $0.63495 after data revealed that domestic wages increased at the slowest annual rate in more than two years during the fourth quarter.

 

The Reserve Bank of Australia reduced rates as expected on Tuesday but issued a warning regarding further easing.