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NZ dollar gains as truce in US, China trade war boosts commodity-linked currencies

Tuesday 22nd May 2018

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The New Zealand dollar rose back above 69 US cents as a truce in the trade war between US and China spurred on demand for commodity-linked currencies. 

The kiwi gained to 69.41 US cents as at 8am in Wellington from 68.97 cents yesterday. The trade-weighted index advanced to 72.79 from 72.50. 

The Thomson Reuters CRB index of 19 commonly traded commodities rose 1 percent and Brent Crude oil gained 1.2 percent to US$79.44 a barrel as investors remained upbeat about the successful trade talks between the world's two biggest economies, which would increase US exports of agricultural and energy products to China. US President Donald Trump tweeted the potential deal would mean China "will purchase from our Great American Farmers practically as much as our Farmers can produce". The positive outlook for commodities comes ahead of a Fonterra Cooperative Group board meeting, which is expected to lift the forecast farmgate payout to New Zealand farmers. 

The optimism over the global trade outlook unwound the kiwi dollar's losses yesterday after weaker-than-expected consumer spending weighed on the outlook for domestic economic growth in the first quarter. 

"The softer retail data provided only a modest setback for the NZD, as the more positive tone to US-China trade relations and rumours of a relaxation in the Chinese birth limits lent support," ANZ Bank New Zealand chief economist Sharon Zollner and economist Philip Borkin said in a note. "After a decent move lower (and some technical momentum indicators looking oversold), it appears the NZD has seen its near-term lows for now." 

The kiwi rose to 4.4300 Chinese yuan from 4.3999 yuan yesterday and decreased to 91.55 Australian cents from 91.70 cents yesterday, with Australia's currency a bigger beneficiary from the cooling trade tensions between the US and China. 

The local currency rose to 58.89 euro cents from 58.69 cents yesterday amid heightened political uncertainty in Italy, where the leaders of the populist Five Star Movement and League parties are due to meet President Sergio Mattarella after an inconclusive election two-and-a-half months ago. University professor Giuseppe Conte is the frontrunner to become prime minister. 

The local currency gained to 77.06 yen from 76.72 yen yesterday and gained to 51.68 British pence from 51.33 pence. 


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