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NZD weakens after Trump steps up pressure on China

Monday 6th May 2019

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The New Zealand dollar weakened after US President Donald Trump stepped up the pressure on China and as investors await rate decisions here and in Australia.

The kiwi was trading at 66.03 US cents at 8am versus 66.44 US cents late Friday in New York. The trade-weighted index was at 72.12 from 72.42. 

Markets are expected to be volatile today after Trump tweeted he will markedly increase US tariffs on certain Chinese goods at the end of this week. "The trade deal with China continues, but too slowly, as they attempt to renegotiate. No!" he said in a tweet. 

"Trump’s threat to lift tariffs on Chinese imports from 10 percent to 25 percent has made for an eventful start to the week for markets," said ANZ FX/rate strategist Sandeep Parekh. 

The kiwi was also knocked lower overnight Friday when the US Labor Department’s monthly employment report showed a greater-than-expected 263,000 new jobs created last month. The unemployment rate was 3.6 percent, the lowest since December 1969, according to Reuters.

However, wage gains did not accelerate as expected, which supported the US Federal Reserve's decision to keep rates unchanged.  

Investors will now be watching for the Reserve Bank of Australia's rate decision Tuesday, with the median in a poll of 26 economists expecting a rate cut to 1.25 percent. However, it is a fine line as only 54 percent of the forecasts are at the median. A rate cut in Australia would increase the pressure on New Zealand to ease rates.

The kiwi was trading at 94.71 Australian cents from 94.52 late Friday in New York. 

In New Zealand, the median in a Bloomberg poll of 17 also points to a 25 basis-point rate cut to 1.50 percent on Wednesday. However, many of those economists say its a line-ball call. Westpac Bank, for example, says "we think there is a 55 percent chance of an OCR cut and a 45 percent chance of an on hold decision."

Parekh noted that while New Zealand's headline inflation slowed more than anticipated, core inflation remains steady. 

"The mixed data pulse has seen markets struggle to price the odds of a cut beyond 50 percent and sets the market up for reaction regardless of the RBNZ’s decision," he said. 

The New Zealand dollar was trading at 50.24 British pence from 50.40, at 59.14 euro cents from 58.94, at 73.02 Japanese yen, unchanged from Friday in New York and at 4.4463 Chinese yuan from 4.4476.


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