Kiwi dollar caught in US-China crossfire
Markets analysts say the latest tariff bombshell was ‘a bit of a surprise’ and will put pressure on our currency
The New Zealand and Australian dollars have been caught in the crossfire by a surprise worsening of trade relations between the United States and China.
Just when they thought US-China trade tensions were dissipating, currency traders were confronted with news yesterday that the US planned to slap an extra US$200 billion ($293.4b) of tariffs on imports from China, putting upward pressure on the US dollar and downward pressure on the Kiwi, the Aussie and several other currencies.
“The trade war headlines had faded over the last few days, so to be hit by this was a bit of a surprise,” Westpac senior markets strategist Imre Speizer said.
“It just keeps coming. And I think it will keep the market on edge.”
Phil Borkin, senior macro strategist at ANZ, said the markets were caught off guard by the suddenness and the “very aggressive” step taken by the United States.
“We have seen the Kiwi, the Aussie and the emerging market currencies put on the back foot again,” Borkin said. “I think that it’s going to bubble away in the background for a while, and all eyes will be on how China responds. You would have to say that there is a risk that it escalates further,” Borkin said.
The kiwi has sold down about half a US cent to a low for the day of US68.08c and the Aussie by a similar amount.
The local currency has been on a downward path over the last six months, driven by suggestions that economic growth is moderating and an outside chance that the Reserve Bank’s next move in its official cash rate could be a cut.
In that time the US dollar has been stronger, driven by improved prospects for the US economy, the likelihood of more rate hikes by the US Federal Reserve, and the “flight to quality” safe haven status that the greenback has in times of international turmoil.
Since the start of the year, the Kiwi has dropped by just under US5c, or 6.6 per cent.
The news threw US-China trade war worries back into the spotlight just days after Washington imposed 25 per cent tariffs on US$34b of Chinese imports, and Beijing responded immediately with matching tariffs on the same amount of US exports to China. Asian share markets were broadly lower in response to the trade news, although the local share market finished flat.
The United States claims China uses predatory practices in a push to challenge American technological dominance. Chinese tactics, the administration says, include outright cybertheft and forcing US companies to hand over technology in exchange for access to the Chinese market.
The initial US tariff list focused on Chinese industrial products in an attempt to limit the impact on American consumers.
By expanding the list, the administration is beginning to hit products that US households buy, including such things as electric lamps and fish sticks.
It’s time for Winston Peters and David Parker to call out the United States’ move to ramp up its trade war with China. I’m not suggesting megaphone diplomacy here.
Donald Trump’s tweets will inevitably be far louder and excoriating than any ministerial commentary from New Zealand.
But this country should not sit meekly on the sidelines while the international order is disrupted.
Foreign Minister Peters, Trade Minister Parker, Agriculture Minister Damien O’Connor, and of course Prime Minister Jacinda Ardern, have stood New Zealand’s ground in private fora. Notably, Peters and Ardern have also, in several pivotal foreign affairs speeches this year, staked considerable ground as they spelt out what their recasting of NZ’s foreign policy as “values based” actually means in practice.
It is a difficult balancing act for them.
They have to weigh the risk of “overdoing it and being shut out” as one Cabinet Minister told me.
But the tectonic plates are shifting. This week, the White House said
it would assess 10 per cent tariffs on a further $US200 billion ($293b) in Chinese goods. If imposed this would
deepen the trade war with Beijing. As the Wall Street Journal noted it would also send a message to other trading partners that “the US won’t back away from trade fights”.
US Trade Representative Robert Lighthizer said he was open to talks with China to resolve the dispute. “As in the past, the US is willing to engage in efforts that could lead to a resolution of our concerns about China’s unfair trade practices and to China opening its market to US goods and services,” said Lighthizer’s statement.
Beijing’s response — which has been mirrored in the tone of an article written by Chinese Ambassador Wu Xi for the Herald — drew on a Western proverb (“like a bull in a China shop”) and accused the US of “undermining the process of globalisation and the international trade order”. There is force to both arguments. But in a domestic environment where the NZ Government has not shied away from “speaking truth to power”, when it comes to Beijing’s actions in the South China Sea, it is important the Government also turns its Beehive microphone on and restates what is at risk for the international trading system and New Zealand’s own future in these unpredictable times.
This does not need to take a hectoring tone.
But a formal statement would not go unnoticed.
After all, Defence Minister
Ron Mark’s commentary — which riled Beijing — was basically a statement of fact.
Mark’s comments were not aggressive.
The time when New Zealand lived in a benign strategic environment has long passed.
When it comes to the South China Sea, both former National Foreign Minister and former National Defence Minister Gerry Brownlee has made similar criticisms to Beijing both privately and publicly.
And when it comes to landing diplomatic punches, Mark’s comments — while direct — were a relatively soft blow.
He was essentially stating a fact that New Zealand does need to position itself for these turbulent times.
The Beijing Foreign Ministry spokesman’s statement was eminently predictable.
The spokesman criticised NZ’s “irresponsible remarks”.
“We urge New Zealand to view the relevant issue in an objective way, correct its wrong words and deeds and contribute more to the mutual trust and co-operation between our two countries,” Hua Chunying said.
Peters is not going to correct his words.
But the Government could usefully note China’s urging to the US to follow accepted trade dispute settlement procedures.
And stand up (again) for what matters.