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NZ dollar weakens on China trade risk, Australia growth worry

Friday 25th January 2019

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The New Zealand dollar weakened against its US counterpart as officials there tried to cool expectations for the China-US trade talks next week and investors saw added risk from the housing slowdown in Australia.

The kiwi fell to 67.58 US cents at 8:30am, from 67.86 cents late yesterday, but rose to 95.36 Australian cents from 95.26 cents. The trade-weighted index eased to 73.50 from 73.62.

The local dollar was lifted through 68 US cents yesterday by better than expected December employment data in Australia. The Australian dollar subsequently fell after mortgage rate rises by NAB added to the perception of risk to the economy from the country’s slowing housing market and the potential for the Reserve Bank of Australia to hold rates for longer or cut them to help maintain momentum.

“To put it in a kiwi perspective, the harder Australian house prices drop, the more fallible the myth that ‘NZ is different’ and ‘prices will never drop here’ will be. Hence the kiwi tends to fall in sympathy with the AUD,” broker HiFX said in a note to clients.

Risks from the extended trade dispute between the US and China – New Zealand’s biggest trading partner – also featured in overnight markets.

US stocks were mixed despite good results from semiconductor makers and airlines. Commerce Secretary Wilbur Ross downplayed the prospect of quick progress in US-China trade talks next week, given the depth of issues involved.

“There has been a lot of anticipatory work done. But we are miles and miles from getting a resolution,” Ross said.

The S&P500 was recently down 0.2 percent. The Nasdaq was 0.4 percent higher.

European Central Bank president Mario Draghi also cited the risk of an extended trade war between the US and China.

He said the region’s economy is slowing sharply, but that members of the bank’s governing council are split on whether a quick rebound is more likely than on-going weakness.

Persistent uncertainty in the global economy is a risk, he said, as are specific factors, including the slowdown in China, and waning effects of fiscal stimulus in the US, and the car industry in Germany.

The kiwi was at 51.80 British pence from 51.90, at 59.80 euro cents from 59.60, at 74.09 Japanese yen from 74.33, and at 4.5836 Chinese yuan from 4.6044.


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