Kiwi up against US dollar after tariff surprise

The New Zealand dollar rose after US President Donald Trump announced tariffs on imported steel and aluminium, which saw stocks on Wall St fall, along with US interest rates, dragging the greenback down.

The kiwi was up to US72.69c at 5pm yesterday, rebounding from an initial selloff, from US72.04c late on Thursday. It has fallen about

1.1 per cent in the past week. The tradeweighted index rose to 74.93 from 74.39 on Thursday.

Trump said he would impose a 25 per cent tariff on imports of steel and 10 per cent on aluminium imports as soon as next week to protect US industry. Traders said they would be watching for any retaliatory behaviour or rhetoric from trading partners including China and Canada.

The threat of a trade war may be only a temporary setback for the US dollar, with the federal open market committee’s latest policy statement due on March 22 and a rate hike nearly pencilled in.

Trump’s announcement “upset the apple cart” and drove down the US dollar as bond yields fell, said Michael Johnston, a senior trader at HiFX. “Longer term it could spark a trade war and the longer term implications could be a weaker kiwi.”

The open market committee meeting on March 20-21 will be the first with Jerome Powell as Fed chair. In his first congressional testimony since starting in the job, Powell said the US economy “remains strong”. In a subsequent appearance before the Senate finance committee he said there was “no evidence the economy is overheating”.

Johnston said the New Zealand dollar might trade in a range of US71.60c-73.30c over the coming week. A rate hike by the Fed on March

22 “is almost a foregone conclusion”, he said. “That’s going to limit how far the US dollar is going to weaken” and if it continued to hike this year, it would give the US dollar a yield advantage that had historically favoured the kiwi. The gap is currently 25 basis points between the official cash rate at 1.75 per cent and the Fed funds range of 1.25-1.5 per cent.

The kiwi didn’t move much after government figures showed residential building permits rose a seasonally adjusted 0.2 per cent in January to 2445, the first gain in six months. Meanwhile, the ANZ Roy Morgan consumer confidence index rose to 127.7 in February from 126.9 in January.

The kiwi extended its gains against the Australian dollar, rising to A93.70c from A93.18c on Thursday, when Australian Government figures showed capital expenditure fell a seasonally adjusted 0.2 per cent in the final quarter of last year versus expectations for a rise of 1 per cent.

The kiwi rose to €59.20c from €59.07c and gained to 52.73 British pence from 52.37p. It rose to 4.6187 yuan from 4.5661 yuan and to ¥77.11 from ¥76.86.