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NZ dollar weakens on US criticism of China, Brexit ructions

Friday 25th October 2019

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The New Zealand dollar slumped on fears US criticism of China would hurt the chances of a US-China trade agreement and as the Brexit impasse appears to be leading to a general election in Britain.

The kiwi was trading at 63.69 US cents at 5pm in Wellington from 63.82 cents at 8:10am. The trade-weighted index was at 70.49 points from 70.62.

In a much-awaited speech, US Vice-President Mike Pence made a series of wide-ranging criticisms of China, from its predatory trade practices to jailing Muslim minorities and trying to stamp out corporate sympathy for the pro-democracy protesters in Hong Kong.

Pence said those protesters "have the prayers and admiration of millions of Americans" and he attacked Nike for "checking its social conscience at the door" in doing business with China.

After all that, Pence said President Donald Trump "remains optimistic an agreement can be reached" on trade with China.

"Overnight, there was a slight risk-off tone come from Vice-President Pence," says Imre Speizer, currency strategist at Westpac.

"I'm surprised the market's reacted to that because the day before it was being written up as Pence playing the bad cop," allowing Trump to play good cop when he meets China's President Xi Jinping in Chile next month.

The two leaders are supposed to be signing a preliminary agreement at that meeting.

On the Brexit front, "it looks like it's going down the election route, which is a risk, although the polls are saying Johnson will win," Speizer says.

UK Prime Minister Boris Johnson has called for an election on Dec. 12, but the 2011 Fixed-Term Parliament Act requires two-thirds of MPs to vote in favour of an early election.

Speizer says the European Union hasn't responded yet to Britain's request for an extension of time beyond Oct. 31 for it to get a Brexit deal through Britain's parliament.

"That might be because they can't agree amongst themselves. The market's seeing some uncertainty," he says.

There are reports that most EU states are prepared to back a three-month extension but that France is arguing for a shorter delay. Johnson himself very unwillingly asked for an extension and only because he was required by law to do so. He's pushing for Brexit to occur on Nov. 15 or 30.

The New Zealand dollar was at 93.40 Australian cents from 93.52, at 49.58 British pence from 49.63, at 57.34 euro cents from 57.43, at 69.20 yen from 69.31, and at 4.5043 Chinese yuan from 4.5111.

The two-year swap rate edged down to a bid price of 0.9210 percent from 0.9350 late yesterday while the 10-year swaps fell to 1.3150 percent from 1.3550.


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