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Kiwi Lower as China Announces Tariffs on U.S Goods

Published May 14, 2019

The Kiwi Dollar opens lower this morning as a wave of risk aversion hit global markets with the U.S-China trade war escalating as China announced retaliatory tariff measures against the U.S. Safe-haven currencies such as the JPY and CHF quickly made ground as money flowed out of more risky assets such as the NZD and AUD. The NZD is down on all major cross rates apart from the AUD, with the Aussie faring worse than the Kiwi overnight.

China Retaliates

China announced overnight that it would hike tariffs on as much as $60 billion worth of US imports to as high as 25 percent following the collapse of last week’s trade talks in Washington. While the tariff amounts are much smaller than those put in place by the U.S, it is targeting goods that will hurt U.S exporters. The tone from both the White House and Beijing has suddenly become less hopeful with markets now pricing in the higher probability of a longer stalemate. President Trump has reacted by saying that “there can be some retaliation but it can’t be very substantial by comparison”. He also stated he planned to meet President Xi at the G20 Summit in Tokyo at the end of June. One of the big things to watch now is whether the U.S will ramp things up further by putting tariffs on another $325b worth of goods at 25%, with Trump adding “I have not made that decision yet”.

Chinese Yuan Continues Decline

Another retaliatory option that China has is to let their currency depreciate, making their goods cheaper to Americans, and U.S goods more expensive to the Chinese. The Yuan fell by 0.8% yesterday, its biggest one-day fall since last October, and is now at its lowest level of the year vs the USD.