Kiwi Dollar

You are here

NZD News: Brexit and the Trade war continue to influence the Kiwi Dollar

30th August 2019

Friday or Groundhog day? I'm not sure at this point, especially considering we have been reporting on Brexit and the US/China Trade War for over a year with little to no resolutions. Not only am I craving some new content, but the poor old Kiwi dollar has been put through the wringer. As we all count down to a five pm Friday beverage, let's take a look at what has impacted the NZD this week. With the weekend in sight, one Kiwi dollar will get you:

0.6202 US dollars
65.1334 Japanese yen
0.5513 euros
0.5006 Great British pound
18.3607 Thai Baht
0.9163 Australian dollars
13226.7 Vietnamese Dong

Are you worried about fluctuating rates? Get peace of mind by adding Rate Guard to your purchase in-store. It's free, and if the rates improve within 14 days of purchase we will refund you the difference!*

Boris met the Queen's Corgis, oh and the Queen approved his request to suspend parliament. 

British Parliament is set to resume after their summer break next week. The new UK Prime Minister, Boris Johnson, however, has given up on his summer tan early and instead busied himself by asking Queen Elizabeth for a small favour. His request? A mere parliament suspension from September 9 until October 14. No biggie, right? Such an application is a formality under the UK constitution to allow a new Prime Minister time to organise legislation and their policy agenda. Except when that suspension occurs just weeks before the UK is set to leave the European Union. 

Queen Elizabeth approved Johnson's request, meaning MPs will have minimal time to oppose a no-deal Brexit, due to take place on October 31. Widespread protests erupted across the UK as a result, with over one million people signing a petition against Johnson's plan to close parliament.  

Many have challenged Johnson's motives as a means of pushing through a no-deal Brexit and a clear move against democracy. House of Commons speaker, John Bercow, described the decision as a constitutional outrage aimed at stopping parliament from debating a solution to Brexit and a means of stifling the voices of those wishing to avoid a no-deal Brexit. Protestors have even gone so far as to promise 'civil disobedience' should Johnson's plan go ahead. 

Opposition leaders unsuccessfully requested a meeting with the Queen in the hopes she would block Johnson request. On Tuesday 160 MPs opposed to a no-deal Brexit signed a pledge to prevent a no-deal exit "using whatever mechanism possible". One such course of action is to remove Johnson as PM via a no-confidence vote. 

News of the suspension did not bode well for the value of the pound, pushing it's value down against most major currencies including the Kiwi dollar. The value of the pound will be severely undermined, should the suspension go ahead and result in the UK crashing out of the EU without a deal. The silver lining in all of this is that it might give UK-bound Kiwi travellers more bang for their buck in the short term. The long-term outlook for such an instance is not ideal, though, as a no-deal Brexit is by no means good for the global economy. 

Trump told a porky, and China wants him to back down on Tariffs

On Tuesday it was reported that Chinese officials hopped on the blower and told Trump's administration that they were hoping to restart trade talks. Trump seemed super positive about the negotiations, just days after he tweeted that he was slapping another tariff increase on Chinese goods. Tuesday's 'positive news' rippled through markets, giving them new hope and global currencies a small boost. China was having none of it though, with their Foreign Ministry Spokesperson, Geng Shuang, saying he had no clue about these so-called conversations.

Well, news hot off the press today says that surprise surprise, Trump maybe, kinda, could have made up these 'high-level' phone calls to boost jolted markets. These reports are not confirmed, but based on old mate Shuang's complete lack of knowledge around said phone calls, I think Trump has probably told a fib or at least exaggerated the truth. 

While Kiwi’s shouldn't complain, because his comments did provide the NZD with a tiny (and very much needed) boost, should the trade deal once again turn sour it will undermine the value of the NZD. Our strong trade ties and love of honey chicken mean the New Zealand economy and dollar are inextricably linked China, so anything negative that happens with the trade war is felt here.

Further to those ties, the NZD is considered to be a risky currency that thrives during 'risk-on' environments. In other words, when there is smooth sailing in global markets (no trade wars, limited risk of recessions, etc.), there is upward pressure on the value of the Kiwi dollar. When the opposite occurs, so basically what is happening now, investors will move to 'safe haven' currencies like the JPY and USD, putting downward pressure on the NZD as a result. 

Trade talks between the US and China resumed today after China's commerce ministry spokesperson, Gao Feng, suggested that, instead of China retaliating against the US over Sunday's planned tariff increase, the US should cancel them. Feng acknowledged that escalating the trade war isn't good for China, America or the broader world that is teetering on the prospect of a recession. The positive request injected some hope into markets; however, I wouldn't get my hopes up too much. 

Should the tariff increases continue as planned, China will no doubt continue with their expected tariff increase on US goods. Thus escalating the trade war and continuing to fester the bad blood between the US and China. 

Domestic News

This week saw the NZD hit multi-year lows against the USD after the release of less than impressive domestic data. 

ANZ released their Activity Outlook and Business confidence data for August. Activity outlook weakened to -0.5% from +5.0% and Business Confidence dropped to -52.3% from -44.3%. 

As the NZD is already grappling with the effects of the trade war and slowing global economy, it’s no wonder this data release caused it to underperform against other G10 currencies severely.

This blog is provided for information only and does not take into consideration your objectives, financial situation or needs.  You should consider whether the information and suggestions contained in any blog entry are appropriate for you, having regard to your own objectives, financial situation and needs.  While we take reasonable care in providing the blog, we give no warranties or representations that it is complete or accurate, or is appropriate for you. We are not liable for any loss caused, whether due to negligence or otherwise, arising from the use of, or reliance on, the information and/or suggestions contained in this blog. All rates are quoted from the Travel Money NZ website and are valid as of 30 August 2019. *Terms and conditions apply to Rate Guard. Seehttps://www.travelmoney.co.nz/rate-guard for more information.