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Weak domestic, China data weigh on kiwi; US-China trade tensions loom

Monday 3rd September 2018

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Weaker than expected terms of trade and a Chinese survey suggesting the Asian economy remained under pressure in August kept the kiwi capped against the greenback in local trading. 

The New Zealand dollar traded at 66.05 US cents at 5pm in Wellington from 66.15 cents at 8am and 66.18 cents on Friday in New York. The trade-weighted index was at 71.66 from 71.80. 

Waning risk appetite was already weighing on the kiwi as markets continue to fret over the escalation of the US-China trade war as US President Donald Trump stands poised to impose 25 percent tariffs on another US$200 billion worth of imports from China. The public comment period ends Thursday in the US. 

The kiwi dipped further after New Zealand's merchandise trade rose 0.6 percent in the June quarter, bolstered by stronger dairy and record meat prices, but fell short of expectations at 1 percent. ASB Bank senior economist Mark Smith said while terms of trade were lower than expected, the measure was still more than one-third above historical averages. 

The local currency was also weighed down by China's Caixin manufacturing PMI declining to a 14-month low of 50.6 in August. Like the official PMI, the breakdown of the Caixin index points to stronger output but weaker new orders, said Julian Evans-Pritchard, senior China economist for Capital Economics. "Overall, the PMIs for August suggest that economic activity continued to cool last month, most likely on the back of a further slowdown in credit growth and infrastructure investment," he said.

Martin Rudings, senior foreign exchange dealer at OMF, said that "added to the risk-off sentiment and I wonder if the US dollar hasn't turned a corner". Rudings noted US markets are on holiday and the kiwi "isn't going anywhere fast." 

The kiwi fell to 91.81 Australian cents from 92.08 cents on Friday in New York and declined to 4.5145 Chinese yuan from 4.5290 yuan. It decreased to 73.26 yen from 73.65 yen last week and traded at 51.07 British pence from 51.11 pence. The kiwi slipped to 56.90 euro cents from 57.18 cents last week.

New Zealand's two-year swap rate fell 1 basis point to 1.96 percent. The 10-year swap fell 2 basis points to 2.80. 


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