Dollar Strengthens on Tariff and Ukraine Tensions; Kiwi Tumbles After RBNZ Rate Cut

The U.S. dollar held firm on Wednesday, supported by tariff concerns and tense Russia-Ukraine negotiations, while the New Zealand dollar slid after the central bank delivered a super-sized interest rate cut.

The Reserve Bank of New Zealand reduced its benchmark rate by 50 basis points to 3.75% on Wednesday, as widely expected. The central bank has now cut rates by 175 basis points since August in an effort to boost a sluggish economy and curb rising unemployment.

The kiwi was last down 0.3% at $0.5687 following the decision, with the central bank's commentary suggesting more cuts were likely.

In the broader market, investors assessed the latest developments in U.S. President Donald Trump’s tariff policies and the uncertainty following Russia-Ukraine peace talks, which concluded without Kyiv or Europe at the table.

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

Ukraine President Volodymyr Zelenskiy stated that no peace deal could be made behind his back. He postponed his visit to Saudi Arabia, originally planned for Wednesday, until March 10 to avoid giving "legitimacy" to the U.S.-Russia talks.

Russia hardened its stance, notably insisting that NATO must not grant membership to Kyiv.

The Trump administration announced on Tuesday that it agreed to hold more talks with Russia on ending the war in Ukraine. Hopes of a peace agreement had buoyed the euro to a two-week high last week, but the currency has since slid. It was last down 0.03% at $1.0442.

“The euro (is) a little unsettled by the clear divisions between the U.S. and Europe regarding the war in Ukraine,” said Sean Callow, senior FX analyst at InTouch Capital Markets.

The greenback surged on Tuesday, supported by euro softness, but remains near a two-month low of 106.56 reached on Friday despite further tariff pledges.

Trump reiterated on Tuesday his intention to impose auto tariffs “in the neighborhood of 25%” and similar duties on semiconductor and pharmaceutical imports.

“So long as Trump is viewed as the boy who cried wolf on tariffs, chunky USD long positions will come under pressure,” Callow added.

Trump has maintained a steady stream of levies and tariff threats in the first month of his presidency, fueling uncertainty about the impact both abroad and domestically.

Investors are awaiting the release of the Federal Reserve's January meeting minutes later in the day for clues on how policymakers are weighing the risk of a global trade war. Markets have priced in about 35 basis points of cuts for 2025.

The dollar index, which measures the greenback against a basket of rivals, rose 0.04% to 107.04.

The yen strengthened 0.05% to 152 per dollar, supported by Japan’s solid October-December GDP data on Monday and recent strong inflation, which has bolstered rate hike bets.

Expectations for a rate hike at the Bank of Japan’s July meeting are growing, but questions remain about the pace and extent of tightening. The spotlight will be on board member Hajime Takata, who is scheduled to speak on Wednesday, along with national CPI data set for release on Friday.

The sterling was flat at $1.2613 after touching a two-month high of $1.2641 in early Wednesday trade. A UK inflation reading is scheduled for later on Wednesday, following Tuesday’s data showing accelerating British wage growth.

The Australian dollar dipped 0.07% to $0.63495, after data showed that domestic wages rose at the slowest annual pace in over two years in Q4.

The Reserve Bank of Australia cut rates as expected on Tuesday but signaled caution on further easing.

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