NZ dollar holds gains as investors await outcome of US-China trade talks

The New Zealand dollar was trading at 67.54 US cents at 8:30 am, from 67.50 cents late yesterday. The trade-weighted index was at 73.28 from 73.29.

The New Zealand dollar held its recent gains as investors await the outcome of US-China trade talks and next instalment in the three-week shutdown of the Federal government in the US. The New Zealand dollar was trading at 67.54 US cents at 8:30 am, from 67.50 cents late yesterday. The trade-weighted index was at 73.28 from 73.29.

While little tangible is expected from trade talks in Beijing today, a just-scheduled national address by US President Donald Trump for 9 pm eastern time Tuesday in the US, will be more closely watched, said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank.

The address on the "humanitarian and national security crisis" on the country's southern border doesn't suggest an early resolution of the government shutdown, he said.

"It may just weaken sentiment for the dollar a little bit," he said. The shutdown "definitely has negative implications for the economy if it carries on."

The kiwi dollar rebounded late last week after stronger than expected jobs growth in the US, and a rate cut by China's central bank, improved confidence in the prospects for the global economy this year. Dovish comments by Federal Reserve chair Jerome Powell on Friday also suggested a pragmatic and patient approach to further rate increases in the US.

Kelleher said that, even before Powell's address, investors had been adjusting their long positions on the US dollar, based on expectations for fewer rate rises by the Federal Reserve in 2019.

"We're seeing a tempering of the bullishness for the US dollar," and other currencies are "drifting back up" on the back of that in light trading, he said. "We are clearly still in holiday mode."

Investors have also been concerned at the potential for the on-going trade dispute between the US and China to weigh on global growth – particularly given recent signs that China's economy is slowing.

The second day of talks is due between the US and Chinese trade officials in Beijing today. Vice-Premier Liu He – China's top trade negotiator – unexpectedly attended at least part of yesterday's meeting, the South China Morning Post reported.

Vice-President Wang Qishan is expected to meet with Trump on the sidelines of the World Economic Forum meeting which starts in Davos on Jan. 22.

Kelleher expects little will be announced from this week's talks. Investors may have to wait till late January before any progress of substance is announced, he said.

The New Zealand dollar bought 94.53 Australian cents, from 94.56 cents yesterday. It eased to 52.90 British pence, from 52.94 pence, and 58.82 euro cents from 59.09 cents yesterday. It rose to 73.31 Japanese yen from 72.97 yen and to 4.6266 Chinese yuan from 4.6211 yuan.