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NZ dollar recovers as US trade deficit widens, China tariff decision looms

Thursday 6th September 2018

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The New Zealand dollar bounced from a two-and-a-half year low as investors await US President Donald Trump's decision on whether to impose stiffer tariffs on China, while data showed the US trade deficit widened. 

The kiwi rose to 65.97 US cents as at 8am in Wellington from 65.55 cents yesterday. The trade-weighted index advanced to 71.65 from 71.26 yesterday. 

The US dollar index fell 0.3 percent as fears over emerging markets subsided, putting the focus back on Trump's reported plans to impose tariffs on US$200 billion of Chinese imports once a review is completed this week. Meanwhile, data showed the US trade deficit widened to US$50.1 billion, in line with expectations. The deficit with China was US$36.8 billion, which ANZ Bank New Zealand economists said was probably distorted by people trying to get in ahead of new tariffs. 

"Investors are likely to remain cautious during our trading day with the real possibility that President Donald Trump may go ahead with his proposed tariffs on US$200 billion of Chinese goods when a public comment period on the taxes concludes later today," traders at HiFX said in a note. "Broad US dollar weakness has seen the NZD trade back towards US 66 cents after falling to its lowest level in almost 30 months yesterday morning."

Traders are also primed for an outcome on the North American Free Trade Agreement talks between the US, Canada and Mexico. Trump has signalled he plans to proceed with a bilateral agreement with Mexico if Canada doesn't cede ground in negotiations. The Bank of Canada kept the overnight target rate at 1.5 percent, as expected, and said it was "monitoring closely the course of Nafta negotiations and other trade policy developments, and their impact on the inflation outlook". 

Local data released today showed New Zealand property values rose at a slower annual pace in August. 

The kiwi rose to 91.66 Australian cents from 91.16 cents yesterday and rose to 4.5031 Chinese yuan from 4.4819 yuan. It increased to 51.10 British pence from 50.97 pence yesterday and gained to 56.71 euro cents from 56.54 cents. The local currency rose to 73.55 yen from 73.11 yen yesterday.


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