Wednesday 9th January 2019
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Financial markets have taken the fact that the US-China trade talks in Beijing carried on into a third unscheduled day as a positive, boosting the fortunes of riskier assets including the New Zealand dollar.
The kiwi was trading at 67.50 US cents at 5pm in Wellington from 67.22 at 8.30am. The trade-weighted index rose to 73.26 points from 73.03.
“Everyone expects Donald Trump to want to make a deal because he will want the markets to go up and make him look good,” says Mitchell McIntyre at HiFX.
A tweet from the US president saying “talks with China are going very well!” added to the growing optimism.
The broad measure of US stocks, the S&P 500 Index has dropped about 8 percent since Trump and China’s President-for-life Xi Jinping agreed a 90-day truce at a Dec.1 meeting in Argentina.
Unless the talks are fruitful, Trump is planning to increase US tariffs on about US$200 billion of Chinese goods from 10 percent to 25 percent.
The markets have taken the fact that the current round of talks went on longer than expected as a positive sign, McIntrye says.
“Risk is trading higher across the market” and last week’s wild swings have been completely shrugged off, he says.
The New Zealand dollar had traded more than a two-cent range in the middle of last week and the Australian dollar was even more volatile, trading in a four-cent range.
McIntyre says the market is still awaiting the minutes of the Federal Reserve’s last meeting in December which are expected to be released on Thursday morning, New Zealand time.
Investors will be looking for confirmation of Fed chair Jerome Powell’s comments last Friday that the Fed will be “patient” in its approach to raising interest rates further.
The market has taken that to be Fed code for saying it won’t raise rates again for some time.
That’s despite the Fed signalling another couple of rate hikes in 2019 when it raised its Fed Funds Rate in mid-December for the fourth time in 2018.
A number of market commentators are now saying Powell has caved to pressure from Trump who has previously cited rising US stock markets as a measure of his own success as president.
The New Zealand dollar edged up to 94.26 Australian cents from 94.09 this morning and to 53.00 British pence from 52.86. It rose to 58.94 euro cents from 58.73, to 73.52 yen from 73.02, and to 4.6145 Chinese yuan from 4.6052.
The New Zealand two-year swap rate ended the session at 1.9393 percent from 1.9350 yesterday; the 10-year rate rose to 2.6550 percent from 2.6275.
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