US 'beggar thy neighbour' policy lifts NZ$; Bipartisanship on CPTPP

US Treasury Secretary Steve Mnuchin. Photo: Getty Images

1. NZ$ headwind building

Donald Trump's America First policy took a darker turn overnight that is already affecting New Zealand more directly.

A day after announcing tariffs of up to 50 percent on solar panel and washing machine imports, America reversed a decades-old strong dollar policy to signal a beggar-thy-neighbour approach to its own currency.

The New Zealand dollar jumped overnight to 74.3 USc for the first time since September after US Treasury Secretary Steve Mnuchin (pictured above) said a weaker US dollar was good for for America in the short term at least. Trade wars in the past have involved higher tariffs with tit-for-tat currency devaluations.

"Obviously a weaker dollar is good for us as it relates to trade and opportunities," Mnuchin told reporters in Davos, adding that the US dollar's fall to a three-year low was not a concern for him in the short term.

"Longer term, the strength of the dollar is a reflection of the strength of the U.S. economy and the fact that it is and will continue to be the primary currency in terms of the reserve currency direction was not a concern," he added, as reported by Bloomberg.

US Commerce Secretary Wilbur Ross followed up the comments with an acknowledgment that America had joined the trade wars.

"Trade wars are fought every single day. So a trade war has been in place for quite a little while. The difference is the U.S. troops are now coming to the ramparts," he said.

The New Zealand dollar has risen nearly five percent against the US dollar since the beginning of January and the Trade Weighted Index is up almost three percent. It is also more than three percent above the Reserve Bank's November Monetary Policy Statement forecast for the March quarter.

This will add deflationary pressures to the economy and slow the export sector at a time when the Government wants to ramp up exporting. It will also complicate the interest rate outlook for Adrian Orr as he arrives to take up the Governorship at the end of March. Continued further New Zealand dollar strength could force the Reserve Bank either further interest rate cuts or intervene to sell the New Zealand dollar to keep inflation within the 1-3 percent band.

New Zealand's inflation outlook will be in the spotlight later this morning when December quarter Consumer Price Index data is released. Economists expect quarterly inflation of around 0.4 percent and annual inflation of around 1.9 percent. A weaker than expected figure would heap the pressure on the Reserve Bank to consider keeping interest rates on hold for even longer than the current forecast of no changes until late 2019, or even possibly cut rates again.

2. But teacher wage pressure builds too

Imported deflation will factor into the Reserve Bank's thinking, but so too will local wages and potential pressure from the public sector in particular.

Newsroom's National Affairs Editor Shane Cowlishaw covers education and has taken a closer look at upcoming wage negotiations between teacher unions and the Government.

Last year the PPTA wasted no time in testing the new Government’s mettle, calling for an immediate five percent pay rise just weeks after they took power.

It was swiftly rejected by new Education Minister Chris Hipkins, who pointed to this year’s bargaining as the appropriate time to negotiate, but the Government will not find it so easy to sidestep the demands after heavily criticising low pay rates while in opposition.

Unions late last year issued a warning of likely industrial action if pay demands were not met, with the PPTA stating a rise of 14.5 percent in the top teacher scale was needed to restore parity to 2002 levels.

See Shane's full piece here on Newsroom Pro.

3. Bipartisanship on CPTPP

All the country's political leaders made their annual pilgrimage to the Ratana Pa north of Whanganui yesterday. Their collegiality and the otherwise convivial tone of the day was immediately challenged with a quick debate over the Parliamentary progress of the CPTPP agreed on Tuesday night and now expected to be signed on March 8.

The Greens reiterated their opposition, while Winston Peters said he would support the legislation in Parliament. Bill English again signaled National would join Labour in Parliament to pass the bill, sparking a rash of celebrations from business leaders about the apparent reformation of a bipartisan approach on trade.

Meanwhile, David Parker announced the confirmation of the deal, which will come into effect later in 2018, would give more time for the Parliament to have a fuller consultation on legislation to ban foreign buying of existing houses. Previously the Overseas Investment Amendment Bill was going to have a shortened select committee process to ensure it was enacted before the CPTPP took effect.

Newsroom's Foreign Affairs and Trade Editor Sam Sachdeva travelled to Ratana with the politicians and filed this piece on the colour and detail of the day. It was windy and hot.

4. Briefly in our political economy...

RONS not dead yet - The Transport Agency sent letters to residents around Otaki and Levin this week advising them of the expected route of the next major roading project in the Northern Corridor, which would extend the motorway from Otaki to the North of Levin. It is one of the roads still being considered by the new Government as it rejigs its Government Policy Statement and shifts the emphasis from roads to rail. A final decision on the project is due later this year and will be a key indicator of whether the Government will continue much further with the Roads of National Significance (RONS) policy championed by the previous Government. (Stuff).

Be prepared - The New Zealand Initiative published a report this morning on the state of preparedness of cities and the Government for disasters. It made a raft of recommendations, including that Government create a pre-existing framework for any post-disaster recovery agency.

5. Briefly in the global political economy...

Donald Trump will arrive in Davos later today to talk to an audience of rich globalists. His cabinet members have already prepared the ground for a renouncement of globalisation. (New York Times)

6. Coming up...

The Government is expected to announce tweaks to employment laws later today that stop short of a full move to fair pay agreements that set industry wide pay standards. See Shane Cowlishaw's preview from Tuesday for more detail.
CPI data for the December quarter is due at 10.45 am today.

7. One fun thing...

Rocketlab revealed the secret payload it put into space earlier this year: a bright blinking satellite that will be the brightest 'star' in the night sky to the human eye.

"The Humanity Star is designed to encourage everyone to look up and consider our place in the universe," it wrote.

8. This morning's political links

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