Uncertain US policy causes hesitation
Both the New Zealand dollar and stock exchange were relatively steady in trading yesterday in the wake of US President Donald Trump’s inauguration and analysts expect the situation to continue as markets take a wait-and-see approach.
ANZ Bank NZ senior economist Phil Borkin said Saturday’s inauguration did little to shed light on the Trump’s administration’s plans.
Markets had rallied strongly after Trump’s election in November with the greenback pushing higher on promises of tax cuts and fiscal spending but “markets are now showing a healthy dose of scepticism because we still don’t have the details, we don’t know how he is actually going to achieve the goals he’s set out,” Borkin said.
“Until we get that information, until markets are able to dissect it, we will remain in this holding pattern.”
Longer-term Borkin said the kiwi would likely weaken against the US dollar but hold up on a tradeweighted index basis.
“The economic credentials here are very good,” he said.
The kiwi gained to US72.02c as at 5pm yesterday from US71.56c at 8am, and the S&P/NZX 50 Index rose 0.3 per cent to 7,067.840.
NZ Institute of Economic Research (NZIER) senior economist Christina Leung also said she doesn’t expect a sharp easing in the currency from Trump’s presidency.
There will be some modest easing, however, as the US Federal Reserve continues to raise interest rates which will reduce New Zealand’s yield
If it’s a risk-off trade, our markets don’t do too well.
advantage.
Leung noted that Trump’s stimulus plans had lifted inflation expectations but also pointed to the uncertainty.
“Whether there will be effects on actual inflation would depend on which spending plans he actually follows through on.”
Westpac Banking acting chief economist Michael Gordon also underscored the lack of clarity around policy to predict the impact.
“The policies he has been pushing are largely domestically-focused and it’s hard to pin down what they actually mean for New Zealand, which means you are coming down to stuff that he hasn’t promised, the stuff he is going to do impulsively and you just can’t predict that.”
Gordon noted there was always policy uncertainty but “the additional layer this time around is you have a guy in charge who extremely thinskinned and vindictive and you don’t know how he is going to respond to any kind of setback”.
Hamilton Hindin Greene broker James Smalley also said investors were waiting for more clarity as “we are in uncharted territory”.
Smalley noted the market was vulnerable to any risk-off trade due to its the level of foreign ownership. If investors became concerned about what Trump did they would start to reduce holdings from what they considered the more speculative part of their portfolio, namely markets like New Zealand, he said.
“If it’s a risk-off trade, our markets don’t do too well,” he said.
While that could create a good buying opportunity for domestic investors “it might mean we get a lot more volatility in our market”.
Smalley said a key bellwether stock regarding potential impact was Fisher & Paykel Healthcare, which had exposure to the US healthcare sector. The company’s stock closed up 7c yesterday at $8.94.
James Smalley