NZ dollar weaker as focus switches to US-China trade tensions

Tuesday 11th June 2019

The New Zealand dollar was weaker as the greenback gained on Mexican products escaping US tariffs and investor attention turned towards developments in the US trade war with China.

The kiwi was trading at 65.94 US cents at 5pm in Wellington from 66.12 at 7:50am while the trade-weighted index eased to 72.39 points from 72.60.

“It’s just been a continuation of US dollar strength,” says Mike Shirley, a dealer at Kiwibank. “We’re still in an environment of the Fed cutting rates sooner rather than later. So that, in theory, should take some of the positivity out of the US story,” he says.

Over the weekend, US President Donald Trump lifted his threat of escalating tariffs on Mexican imports, saying that Mexico had bowed to pressure and agreed to help limit the flow of refugees from Central America over the US border.

The market is now focusing on the upcoming G20 meeting in Osaka near the end of the month at which Trump and China’s President Xi Jinping are supposed to meet. China hasn’t confirmed that meeting yet.

Trump has threatened to levy even more tariffs on Chinese imports if the meeting doesn’t take place but Shirley says the market is reacting less and less to such developments.

“Once bitten, twice shy, or many, many times bitten, many times shy.”

The market’s next focus is likely to be on a speech scheduled for 11:25am, Wellington time, tomorrow by Reserve Bank of Australia assistant governor for financial markets Christopher Kent to the Australian Renminbi Forum. Renminbi is another name for China’s currency

Such a speech wouldn’t normally attract much attention but it will given an environment in which "central banks seem to be falling over themselves to race to the bottom of the interest rate marathon,” Shirley says.

RBNZ cut its official cash rate last month and the RBA followed suit on June 5. Fed chair Jerome Powell has promised to “act as appropriate” if trade tensions start to undermine US economic growth.

The market now expects the Fed to cut its key rate in September and December.

The New Zealand dollar was trading at 94.74 Australian cents from 94.96, at 58.27 euro cents from 58.41, at 71.60 yen from 71.68 yen and at 4.5607 Chinese yuan from 4.5820.

The New Zealand two-year swap rate edged up to 1.4075 percent from 1.3950 yesterday while the 10-year swap rate rose to 1.9175 percent from 1.9125.

(BusinessDesk)

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