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NZD falls to 2 year low, U.S trade concerns continue to weigh on market confidence

Published July 3, 2018

The Kiwi Dollar continued its recent sharp decline as political uncertainty in Germany and escalating global trade tensions have seen global equities fall and safe haven currencies benefit overnight.

NZD falls to 27 month low

The NZD had consolidated during local trade yesterday before resuming its downward trend overnight and falling below the 67 cent level for the first time in over two years. The NZD and AUD were the hardest hit of the major currencies both down over 1%, given their strong link to China, which is the main focus of President Trump’s trade tariff crusade. Concerns that the US will go ahead and impose tariffs on $34 billion worth of Chinese imports and that China will retaliate in kind on July 6th unless both sides can make enough progress toward a trade cease-fire this week, has renewed risk aversion within global markets.
On the local front today, the highlight will be our business confidence report, while direction for the NZD/AUD cross rate will be come from this afternoon’s RBA monetary policy statement. The RBA’s meeting is expected to be a non-event although the market will be interested to see if any concerns are raised about the global trade and economic outlook. Tonight sees the GDT dairy auction which is expected to show a modest decline in USD pricing.

Political crisis in Germany worsens

German interior minister and Bavarian coalition leader of the CSU party, Horst Seehofer, has offered his resignation as party head and interior minister. He has said that he is not satisfied with the current EU deals. He has given German Chancellor Merkel a 3-day ultimatum to find a compromise, or he will definitely resign. The market now awaits an announcement, with the possibilities either being no change to the status quo, or a break up that could result in Merkel forming a minority government, or maybe call for fresh elections. This level of uncertainty within Europe’s largest economy has contributed to the current risk aversion within global markets.