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NZ dollar gains as Trump's tariff plan weighs on greenback

Friday 2nd March 2018

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The New Zealand dollar rose after US President Donald Trump announced tariffs on imported steel and aluminium, which saw stocks on Wall Street fall, along with US interest rates, dragging the greenback down.

The kiwi dollar rose to 72.69 US cents as at 5pm in Wellington, rebounding from an initial selloff, from 72.04 cents late yesterday. It has fallen about 1.1 percent in the past week. The trade-weighted index rose to 74.93 from 74.39 yesterday.

Trump said he will impose a 25 percent tariff on imports of steel and 10 percent on aluminium steel imports as soon as next week, a move he said is aimed at protecting US industry. Traders said they'll be watching for any retaliatory behaviour or rhetoric from America's biggest trading partners including China and Canada. The threat of a trade war may be only a temporary setback for the US dollar, with the Federal Open Market Committee's latest policy statement due out on March 22 New Zealand time and a rate hike nearly pencilled in.

Trump's announcement "upset the apple cart" and drove down the US dollar as bond yields fell, said Michael Johnston, a senior trader at HiFX. "It's going to be interesting to see how people react to Trump's statement in the next few days. Longer term it could spark a trade war and the longer term implications could be a weaker kiwi."

The FOMC holds its next two-day policy meeting on March 20-21 in the US, the first with Jerome Powell as Fed chair. In his first congressional testimony since starting in the job, Powell said the US economy "remains strong" although in a subsequent appearance before the Senate Finance Committee he said there was "no evidence the (US) economy is overheating." 

Johnston said the New Zealand dollar may trade in a range of 71.60 US cents to 73.30 cents over the coming week.

A rate hike by the Fed on March 22 "is almost a foregone conclusion," Johnston said. "That's going to limit how far the US dollar is going to weaken" and if it continues to hike this year it will give the US dollar a yield advantage that has historically favoured the kiwi. The gap is currently 25 basis points between the official cash rate at 1.75 percent and the fed funds range of 1.25 percent to 1.5 percent.

The kiwi didn't move much after government figures showed residential building permits rose a seasonally adjusted 0.2 percent in January to 2,445, the first gain in six months. Meanwhile, the ANZ Roy Morgan consumer confidence index rose to 127.7 in February from 126.9 in January.

‚ÄčThe kiwi extended its gains against the Australian dollar, rising to 93.70 Australian cents from 93.18 cents yesterday when Australian government figures showed capital expenditure fell a seasonally adjusted 0.2 percent in the final quarter of last year versus expectations for a rise of 1 percent.

The kiwi traded rose to 59.20 euro cents from 59.07 cents and gained to 52.73 British pence from 52.37 pence. It rose to 4.6187 yuan from 4.5661 yuan and rose to 77.11 yen from 76.86 yen.


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