Friday 31st May 2019 |
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The New Zealand dollar was little changed as traders grappled with increasing global uncertainty, exacerbated by United States President Donald Trump slapping – via tweet – a 5 percent tariff on all Mexican goods entering the US.
The kiwi was trading at 65.10 US cents at 5:05pm in Wellington from 65.06 at 8:10am. The trade-weighted index rose to 71.84 points from 71.80.
Trump’s tweet said that the tariff on Mexican imports would rise each month to reach 25 percent in October “until the illegal immigration problem is remedied.”
The tariffs would remain at 25 percent "unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory," he said.
The move casts further doubt on the re-negotiated NAFTA trade deal between the US, Mexico and Canada that is still awaiting approval by Congress.
The Trump administration is trying to speed up the process, but Democrat Nancy Pelosi, speaker of the lower house of Congress, is warning the Republican-held White House that her party wants key changes before it will support the new deal.
Mexico is a significant exporter of agricultural products into the US and is also a major manufacturing hub for many US companies including Ford, General Motors, John Deere, IBM and Coca-Cola.
The US and China are already engaged in an escalating trade war which has been unsettling markets for months.
Mike Houlahan, a senior dealer at XE, says it’s month’s end and “I guess there’s a lot of uncertainty in the world. People are not quite sure which way to move. They’re not quite sure what happens next.”
On top of the trade concerns, the market is starting to focus on the likelihood that the Federal Reserve may cut interest rates.
The Fed’s vice-chair, Richard Clarida, said in a speech in New York on Thursday that the bank could cut rates “if the incoming data were to show a persistent shortfall in inflation below our 2 percent objective, or were it to indicate that global economic and financial developments present a material downside risk to our baseline outlook.”
The Fed’s preferred inflation measure is the Personal Consumption Expenditure Index which climbed 1.6 percent in the year ended March. Figures for April are due out later today.
“If that’s on the soft side, you will see more people thinking the US will cut interest rates and that should support the New Zealand dollar – that’s why we’ve got this stalemate at the moment,” Houlahan says.
In addition, the Reserve Bank of Australia is widely expected to cut its cash rate next Tuesday.
The New Zealand dollar was at 94.10 Australian cents from 94.14, at 51.63 British pence from 51.59, at 58.50 euro cents from 58.42, at 70.93 yen from 71.26 and at 4.4970 Chinese yuan from 4.4899.
The New Zealand two-year swap rate edged down to 1.4364 percent from 1.4592 yesterday, while the 10-year swap rate fell to 1.9125 percent from 1.9625.
(BusinessDesk)
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