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NZ dollar falls in catch-up to Aussie on Trump China Trade tweet

Friday 2nd August 2019

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The New Zealand dollar fell, particularly against the Australian dollar, in the wake of US President Donald Trump tweeting plans to impose more tariffs on US$300 billion of Chinese goods next month.

Both the Australian and New Zealand dollars fell immediately in response to the tweet escalating the US trade war with China but the Australian dollar was hit hardest to begin with overnight local time. The New Zealand dollar has since caught up, says Mitchell McIntyre, a dealer at XE.

The kiwi was trading at 96.01 Australian cents at 5pm in Wellington from 96.41 cents at 8am but is still up from 95.72 cent level late yesterday. It is also higher than its 95.88 Australian-cent level a week ago.

It was at 65.38 US cents from 65.50 cents this morning, down nearly a cent from 66.33 in New York last Friday. The trade-weighted index was at 72.37 points from 72.49.

Trump’s latest threat would effectively tax every product Americans buy from China. The latest tariffs – in addition to the existing 25 percent tariffs on US$250 billion of Chinese goods – would start at 10 percent but could rise to 25 percent at a later date.

The tweet followed the resumption of talks between the US and Chinese officials in Shanghai earlier this week to try to resolve the two nations’ differences.

Ahead of Trump’s tweet, the White House had issued a statement saying that the talks had been “constructive.”

China is the largest trading partner of both Australia and New Zealand and Australia is New Zealand’s second-largest trading partner.

“Now that the dust has settled, we’re falling back into the middle of the range,” McIntyre says of the kiwi dollar. “I think we’re probably going to see kiwi weakness come back – that was the underlying sentiment before the tweet,” he says.

The Reserve Bank is expected to cut its official cash rate again next week to a record low at 1.25 percent after cutting in May to 1.5 percent.

“The big focus is going to be the rhetoric – the market’s going to be watching really closely for that future guidance and the chances are they’re going to be more aggressive,” McIntyre says.

The latest survey of business sentiment published earlier this week showing ever-deepening pessimism, particularly in the construction sector, has got people talking about employment starting to come under pressure.

“They’re going to want to pre-empt weakness in that area,” McIntyre says.

When current RBNZ governor Adrian Orr took up his position in March last year, the policy targets agreement included both an inflation target – Orr is to aim for the mid-point of 1-3 percent inflation – and an employment target – he is to aim for maximum sustainable employment.

The New Zealand dollar was at 70.00 yen from 70.41, at 54.99 British pence from 54.01, at 59.01 euro cents from 59.15 and at 4.5400 Chinese yuan from 4.5239.

Wholesale interest rates fell sharply and hit record lows again. The New Zealand two-year swap rate fell to a bid price of 1.1953 percent from 1.2411 yesterday. The 10-year swap rate eased to 1.5400 percent from 1.6325.


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