Wednesday 11th July 2018
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The New Zealand dollar fell after US President Donald Trump's administration continued to ratchet up its trade war with China, unveiling a list of US$200 billion of imports facing a new 10 percent tariff.
The kiwi traded at 68.16 US cents as at 11.45am from 68.39 cents before reports of the pending announcement, and against Japan's currency, typically seen as a safe haven for investors, the New Zealand dollar fell to 75.55 yen from 76.09 yen.
US Trade Representative Robert Lighthizer today said the president ordered his office start work on imposing additional tariffs to the US$34 billion of Chinese imports that kicked in on Friday, as a response to China's retaliation, something he said China had "no justification for". The move prompted a sell-off in Wall Street futures, with the Dow Jones down 0.9 percent and the Standard & Poor's falling 0.8 percent, while New Zealand's S&P/NZX 50 index was more muted, edging up less than 0.1 percent to 9,027.31.
"The fact that he's (Trump) only prepared to release a list of US$200 billion (of import tariffs) means he is probably prepared to up the ante again," said Mark Johnson, a senior dealer foreign exchange at OMF in Wellington. "All these market moves this morning are attributable to Trump's preparation for increased tariffs."
The escalating trade war between the world's two biggest economies has been a major driver for financial markets and is a major risk for New Zealand's economy, which is self-dubbed an open trading nation and counts China as its biggest trading partner and the US as its third-biggest.
Johnson said the trade stoush should be more positive for the greenback, with recent interest rate increases by the Federal Reserve increasing the yield attraction for the world's reserve currency relative to other safe-haven assets such as the yen and Swiss franc.
At the same time, New Zealand is losing its yield appeal with the Reserve Bank set to keep the official cash rate at 1.75 percent for the foreseeable future. Johnson said if the June consumers price index falls short of expectations next week it may increase the number of bets for a cut to the OCR.
New Zealand's two-year swap rate fell about 2 basis points to 2.17 percent and 10-year swaps slipped 1 basis point to 3.02 percent.
Johnson said the kiwi has been in a downward trend for several months now and is capped in the short-term at 66.80 US cents. OMF is more inclined to sell the kiwi on rallies, he said.
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