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NZ dollar rises on optimism for China-US trade deal

Monday 18th February 2019

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The New Zealand dollar rose against all other currencies amid growing optimism the United States and China will settle their trade differences.

The kiwi was trading at 68.83 US cents at 5pm in Wellington from 68.58 at 8am. The trade-weighted index was at 74.59 from 74.43.

“The risk-positive sentiment from Friday night extended into the Asian session today,” says Imre Speizer, market strategist at Westpac.

In the early part of the day, the currency moved little and the rally didn’t get underway until Asian markets opened for the week, Speizer says.

Asian investors were more willing to buy risk-sensitive assets and both the kiwi and Australian dollars benefited from the improved sentiment, he says.

Five days of talks in Beijing last week ended on a positive note with both sides reporting progress. The talks move to Washington this week.

US President Donald Trump told a White House news conference on Friday that “a real trade deal” between the two countries was closer than ever and that he would be “honoured” to remove tariffs already imposed on Chinese imports if an agreement can be reached.

He also reiterated that his self-imposed early March deadline for a deal to be reached before he imposes further tariffs could be extended.

According to the Financial Times, China is offering to turn its trade surplus with the US into a deficit within six years. That would be no mean feat given China’s trade surplus with the US reached US$380 billion in 2018.

The improving global backdrop added to the impetus the kiwi received last week after Reserve Bank governor Adrian Orr was less dovish about the outlook for inflation and interest rates than the market had expected.

Orr pushed the likelihood of the next rate hike six months further out into 2021, although he said the risks were reasonably balanced and that the next move in his official cash rate could be either up or down.

On the back of those comments, the kiwi gained almost 1.8 percent last week and is 2.2 percent higher than it began the year.

The New Zealand dollar is trading at 96.30 Australian cents from 95.96, at 53.31 British pence from 53.06, at 60.82 euro cents from 60.73, at 76.67 yen from 75.73 and at 4.6506 Chinese yuan from 4.6415.

The two-year swap rate is at 1.9117 percent from 1.8880 on Friday; the 10-year swap rate is at 2.4950 percent from 2.4724.


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