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Global risk aversion keeps NZ dollar capped

Tuesday 29th January 2019

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The New Zealand dollar remains under pressure after the US levelled criminal charges against telecom giant Huawei on the eve of China-US trade talks.

The kiwi traded at 68.36 US cents at 5pm in Wellington, unchanged on the day but down from 68.68 cents yesterday. The trade-weighted index fell to 73.85 from 74.08 yesterday.

Investors were already jittery about the possible impact of the US-China trade tensions after shares in Caterpillar fell 9 percent and Nvidia Corp tumbled 13.8 percent in US trading on profit warnings related to softening Chinese demand. 

Sentiment weakened further after Acting Attorney General Matthew Whitaker announced that a grand jury in Seattle has returned an indictment that alleges 10 federal crimes by two affiliates of Huawei Technologies. According to a statement from the US Department of Justice, Huawei began a concerted effort in 2012 to steal information about a robot that T-Mobile used to test mobile phones.  

Whitaker also announced that a grand jury in New York has returned an indictment alleging 13 additional crimes committed by Huawei, its CFO, its affiliate in Iran, and one of its US subsidiaries. The department says the criminal activity "goes back at least 10 years and goes all the way to the top of the company."

"The kiwi is struggling with a bit of risk off today," said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank. He cited the Huawei news on the eve of the US-China trade talks as the reason. 

US President Donald Trump is expected to meet China's top trade negotiator this week in a round of talks on Wednesday and Thursday, according to Bloomberg. Trade tensions between the two nations have eroded optimism about global growth, something that has weighed on commodity-linked currencies like the New Zealand and Australian dollars. 

Kelleher said the Australian dollar is struggling more than the New Zealand dollar, which is why the kiwi has gained against the Aussie but "kiwi is not looking too flash either." 

It traded at 95.43 Australian cents from 95.26 cents yesterday. The Aussie may also have suffered after National Australia Bank's monthly survey showed that business conditions in Australia have experienced their steepest monthly fall since the global financial crisis. 

Kelleher also said investors will be keeping an eye on voting in Britain's Parliament on Tuesday on Brexit amendments. Britain is set to leave the European Union on March 29, with or without a Brexit agreement with the EU. The kiwi traded at 51.97 British pence from 51.84 pence yesterday and at 59.77 euro cents from 59.75 cents.

The kiwi fell to 74.65 yen, from 74.84 yen yesterday, and was at 4.6099 Chinese yuan from 4.6114 yuan. 

The two-year swap rate is at 1.9007 from 1.8950 percent late yesterday; the 10-year swap rate is at 2.5575 from 2.5700. 


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