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NZ dollar falls after China's trade surplus with US balloons

Monday 14th January 2019

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The New Zealand dollar drifted downwards after data showed China’s trade surplus with the US widened to its highest level in more than a decade, news that is likely to exacerbate tensions between the two nations.

The kiwi fell to 68.07 US cents at 5pm in Wellington from 68.20 at 8.30am. The trade-weighted index eased to 73.54 points from 73.70.

“The data is showing that the problem with the US trade situation isn’t getting any better,” says Peter Cavanaugh, senior client advisor at Bancorp Treasury Services.

China’s trade surplus with the US grew 17 percent in 2018, with exports to the US rising 11.3 percent in the year while imports rose just 0.7 percent.

The market had been encouraged last week that the two nations would strike a deal after trade negotiations between Chinese and US officials in Beijing were extended by a day to three days.

US President Donald Trump regards China’s trade surplus as somehow a form of theft.

Cavanaugh says some of the changes China is making won’t do much to help encourage imports from the US.

For example, China reducing the tariff on cars made in the US from 25 percent down to 10 percent is more likely to benefit German brands such as Mercedes Benz, which manufactures cars in the US, and BMW, which assembles cars in the US, than US brands.

Adding to the adverse trade data and boding ill for the global economy, the Chinese economy “is showing signs of suffering from credit issues and over-leveraging,” Cavanaugh says.

“The trade data is showing that they’re still busily shipping stuff out to the rest of the world, particularly the US.”

The figures are adding to already uncertain market sentiment and reinforce comments from Federal Reserve chair Jerome Powell that trade issues and the outlook for global growth are among his major concerns.

Also keeping the market on edge is the upcoming vote on Tuesday in Britain’s parliament over whether to support Prime Minister Theresa May’s Brexit plan.

May told the BBC that she’s making a last-ditch attempt to persuade members of parliament to back her Brexit deal.

But she said that no Brexit is more likely than no deal, and she also warned that trust in politics would suffer “catastrophic harm” if Brexit, approved by a referendum in 2016, isn’t implemented.

Opposition Labour leader Jeremy Corbyn is promising a vote of no confidence if parliament doesn’t vote for May's Brexit plan.

The British pound rallied on May’s comments and the New Zealand dollar fell to 52.97 pence from 53.06 this morning.

Against the Australian dollar, the kiwi rose to 94.67 cents from 94.54. But it fell to 73.59 yen from 73.92, to 59.32 euro cents from 59.52 and to 4.5974 Chinese yuan from 4.6100.

The New Zealand two-year swap rate fell to 1.8850 percent from 1.9233 on Friday; the 10-year swap rate dropped to 2.5780 percent from 2.6225.


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