Market Overview

The New Zealand Dollar Tumbles As Trade War Intensifies

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A number of factors have caused the New Zealand Dollar (NZD) to plummet this week, but futher U.S. tariffs on Chinese goods have largely been attributed with sending the currency to lows not seen since 2016. The escalating trade war has also seen the safe haven currencies such as the Yen and Swiss Franc capitalise.

The Latest Trade Salvos

Following recent unsuccessful talks between American and Chinese trade negotiators, it would now appear that Trump is looking to increase his grip on imports. The President is expected to announce tariffs on a further $267 billion worth of goods shortly. This will almost be matched by China, unsettling the scenario further.

Trump's additions tariffs now mean that the vast majority of Chinese goods fall under the tariffs which have begun to cause huge issues for Chinese exporters.

Last week's trade data highlighted that China's surplus grew further and now stands at $31.1 billion. This is despite shipments from China now costing roughly 9.8 percent more. The changing of the trade landscape is now leading economists to the conclusion that China's economic growth could be affected in 2019. If this economic prediction does indeed materialise further pressure could be put on the NZD and Australian Dollar due to their close links to the Chinese economy.

Governor Orr Speaks On Geopolitics

Speaking in Auckland, Reserve Bank of New Zealand Governor Adrian Orr addressed a crowd on recent geopolitics. Despite the plethora of current events that could be addressed, Orr's speech remained entirely for the future sustainability of the Reserve Bank.

Orr spoke candidly promoting New Zealand's economic growth plus his aims to develop a health financial ecosystem. Addressing the workplace saving conference Orr said, "Too often, due to short-termism, we view economic growth as something that comes at the expense of a sustainable environment, or social cohesion and cultural acceptance. A short-term focus can be driven by the need to survive from day-to-day. However, it is too often driven by the desire to consume at an unsustainable rate. The desire for instant gratification or reward can often leave behind a trail of unintended consequences."

His comments potentially highlighted that the Reserve bank is in no hurry to make short sharp policy changes but rather, more sustainable financial decisions to ensure New Zealand's economic outlook.

New Zealand And U.S. Interest Rates Diverging

Forex traders have been concerned with the pressure being applied on the antipodean currencies by the current global trade landscape.

New Zealand's core interest rate outlook is now lower than the U.S. interest rate, 1.75 percent to the U.S.' expected interest rate of 2 percent. New Zealand's interest rate has remained static since being cut in November 2016.

The U.S. economy, despite recent dovish tones from Governor Powell, is primed for further rate rises which will almost certainly see the USD gain further momentum against the NZD. This diversion in interest rates has been highlighted in the NZD/USD rates, which have breached lows last seen in January 2016.

NZD Tumbles Vs. Safe Havens

Renewed trade war rhetoric saw traders holding Kiwi Dollars flock to non-USD safe havens such as the Yen and Swiss Franc. Following President Trump's plans to roll out further import tariffs, the NZD/JPY fell from 72.88 to 72.43, over Friday's trading session the pair fell 0.58%, despite the NZD recovering slowly.

NZD/JPY exchange rates chart on September 10, 2018

Against the Swiss Franc, the NZD also suffered, with the pair falling nearly 0.5 percent in Friday's trading session. Trump's tariff's omission saw the NZD/CHF fall from 0.6361 to 0.6344. The losses continued with the pair touching a multi-year low of 0.6332.

NZD/CHF exchange rates chart on September 10, 2018

NZD Forecasts Cloudy

While economic data remains limited, with only New Zealand manufacturing data expected this week, markets will await further movement to make more convicted forecasts. Developments on or implementation of the U.S.' tariff plans will almost certainly weigh on the currency.

Related Links:

Focus On These 3 T's: 5 Things The Global Markets Are Talking About Today

US-China Trade Tensions Appear To Weigh On Wall Street As Downbeat September Continue

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: contributor contributorsNews Forex Global Markets

 

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