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NZ Dollar Reacts to US-China Trade War Developments

August 26, 2019 at 11:53 by Vladimir Vyun

Kiwi denominationsThe New Zealand dollar was weak initially today but has managed to rebound by now. While domestic macroeconomic data was negative, the main reason for the initial drop and the subsequent rebound were developments in the US-China trade war.

On Friday, markets were rattled by the new round of escalation of the trade spat between the United States and China. China responded to the US plans of new tariffs on Chinese goods with its own levies, and US President Donald Trump threatened to retaliate. While he initially did not specify what kind of retaliation he had in mind, he clarified after markets closed that he is going to ramp up the planned tariffs by 5 percentage points.

When markets reopened and had a chance to react to the news, risk aversion prevailed. That could explain the initial slump of the kiwi. But apparently, the risk sentiment improved, perhaps after Trump said that China is ready to renew negotiations. Chinese Vice-Premier Liu He also talked about the desire to negotiate, saying:

We believe that the escalation of the trade war is not beneficial for China, the United States, or to the interests of the people in the world.

As for New Zealand’s data, the trade balance turned to a deficit of NZ$685 million in July from a surplus of NZ$331 million in June. While economists were anticipating a deficit, they were counting on a much smaller figure of NZ$250 million. Imports rose, while exports fell, led by dairy and logs.

NZD/USD was little changed at 0.6379 as of 11:51 GMT today, rebounding from the daily low of 0.6342. EUR/NZD edged down from 1.7454 to 1.7424, retreating from the session maximum of 1.7590. NZD/JPY opened at 66.97, fell to the minimum of 66.30 intraday, but bounced to 67.52 alter.

If you have any questions, comments, or opinions regarding the New Zealand Dollar, feel free to post them using the commentary form below.

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