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NZ dollar sticks to tight range; markets await trade war developments

Monday 17th September 2018

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Ongoing China-US trade tensions kept the New Zealand dollar capped, with investors jittery about potential domestic economic impacts given China is the Pacific nation's largest trading partner. 

The kiwi traded at 65.54 US cents at 5pm from 65.50 US cents at 8am in Wellington and 65.46 cents on Friday in New York. The trade-weighted index was at 71.34  from 71.24 last week.

President Donald Trump is likely to announce new tariffs on about US$200 billion of Chinese imports as early as Monday, a senior administration official told Reuters. Separately, the Wall Street Journal reported Beijing may decline to participate in proposed trade talks with the United States later this month if the Trump administration moves forward with the tariffs. Against that backdrop, the US dollar remained firm although trading was light due to a holiday in Japan. 

"The New Zealand dollar continues to fall under the shadow of US dollar strength, downbeat NZ business confidence, falling dairy prices, emerging market stress, Chinese yuan depreciation, and of course the constant threat of US trade tariffs," Jarrod Kerr, chief economist for Kiwibank, said in a note. 

While trade headlines will continue to weigh, domestically "this week will be dominated by GDP mania," he said. Second quarter gross domestic product likely grew 0.8 percent for an annual gain of 2.5 percent, according to a Bloomberg survey of 16 economists. The Reserve Bank forecast 0.5 percent quarterly growth. The data is due Thursday. 

"If it’s on expectation, the kiwi should start to form a base after a long period of freefall," said Kerr. 

Investors will also be watching for the Global Dairy Trade Auction, overnight Tuesday, where NZX dairy futures are pointing to further weakness in prices. 

"Another fall in dairy prices would reinforce the downward pressure that we already judge to be on Fonterra’s 2018/19 milk price forecast of $6.75," said BNZ head of research Stephen Toplis.

Kerr said the Westpac-McDermott Miller consumer confidence survey for 3Q due Wednesday will also garner some interest given weak business confidence of late. 

The kiwi traded at 91.60 Australian cents from 91.43 cents Friday and gained to 4.5000 Chinese yuan from 4.4912 yuan last week. It edged up to 56.31 euro cents from 56.27 cents on Friday and traded at 50.08 British pence from 50.03 pence. The local currency increased to 73.37 yen from 73.27 yen last week.

New Zealand's two-year swap rate was unchanged at 1.97 percent while 10-year swaps rose 2 basis points to 2.84 percent.


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