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NZ dollar falls as trade stoush rattles emerging markets, commodity currencies

Monday 18th June 2018

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The New Zealand dollar fell as the US versus China trade stoush weighed on currencies of emerging markets and commodity-exporting nations. The US dollar index is trading near its highest levels in almost 12 months.

The kiwi dollar declined to 69.38 US cents as at 5pm in Wellington from 69.48 cents in New York on Friday. The trade-weighted index was at 73.47 from 73.56.

The US dollar has strengthened in the face of escalating trade tensions and has also been buoyed by rising US interest rates. China responded to US tariffs on US$50 billion of Chinese goods by targeting farm commodities and cars from the US for US$34 billion of tariffs and flagging a further US$16 billion of goods such as coal and oil that will face tariffs down the track. Among emerging market currencies, the Malaysian ringgit fell to its weakest level in about five months, trading recently at 3.9945 to the US dollar while the Australian dollar has fallen to its lowest levels against the greenback in almost 12 months.

"The market has become risk off, certainly in emerging markets today," said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank. The Australian dollar appeared to be acting as a hedge for emerging currencies and dragging the kiwi lower with it.

The kiwi dollar fell to 93.18 Australian cents from 93.27 cents on Friday in New York. 

Kelleher said there was scope for some volatility in the kiwi this week on the back of more localised events. The latest Global Dairy Trade auction is due tomorrow night, the first-quarter balance of payments data is released on Wednesday and gross domestic product for the first quarter on Thursday.

ASB is forecasting economic growth of just 0.4 percent, below the market consensus of 0.5 percent and lower than the Reserve Bank's 0.7 percent forecast.

The kiwi didn't move much after the BNZ-BusinessNZ performance of services index (PSI) for May rose 0.9 points to 57.3.

The local dollar traded at 59.83 euro cents, little changed from Friday in New York, and at 52.26 British pence from 52.28 pence. It fell to 76.59 yen from 76.85 yen and slipped to 4.4647 yuan from 4.4711 yuan.

New Zealand's two-year swap rate was unchanged at 2.23 percent and 10-year swaps fell 1 basis point to 3.12 percent.


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