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NZ dollar pares gains as Cohn's exit triggers trade war fears

Wednesday 7th March 2018

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The New Zealand dollar pared earlier gains against the greenback after the resignation of US President Donald Trump's economic advisor Gary Cohn stoked renewed fears of a possible trade war.

The kiwi traded at 72.58 US cents as at 5pm in Wellington versus 72.94 cents as at 8am and 72.35 cents late yesterday. The kiwi rose to a week-high overnight on news that North Korea is willing to hold talks with the US over its nuclear weapons programme but pared most of those gains on the Cohn news. The trade-weighted index rose to 74.77 from 74.44 yesterday. 

Investors were jittery after Cohn's resignation stoked fears Trump will push ahead with tariffs on aluminium and steel and impose further protectionist trade policies, risking a trade war.  Cohn, who was a key architect of the 2017 tax overhaul in the US and a former Goldman Sachs executive, did not spell out why he was resigning. However, according to Bloomberg, Trump demanded his cooperation with the tariffs. The story cited two people familiar with the episode as saying Cohn would not offer his support and just hours later the White House announced his resignation. 

"It's a risk-off move on the back of that. We have also seen equities move lower and Treasuries rally," said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank.

The kiwi lifted against the Australian dollar, which was hurt by risk aversion and after Australia's economy grew by less than expected in the final quarter of 2017. The gross domestic product expanded by 0.4 percent in the fourth quarter and 2.5 percent on the year versus expected growth of 0.5 percent and 2.5 percent. The kiwi traded at 93.36 Australian cents versus 92.96 cents yesterday.

Looking ahead, Kelleher said investors will be waiting for the Bank of Canada's rate decision later in the global trading day, with the BOC expected to keep rates on hold at 1.25 percent. Following that the European Central Bank's decision Thursday will be in focus, in particular any forward guidance, as will the Bank of Japan at the end of the week.  

The kiwi traded at 77 yen from 76.95 yen yesterday and edged up to 58.66 euro cents from 58.58 cents yesterday. It gained to 52.44 British pence from 52.25 pence and increased to 4.6091 yuan from 4.5872 yuan.

New Zealand's two-year swap rate rose 3 basis points to 2.20 percent, and 10-year swaps rose 3 basis point to 3.23 percent.


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