NZ dollar slips below 69 US cts as trade war fears weigh on investor optimism

The kiwi decreased to 68.94 US cents as at 8am in Wellington. Photo: Lynn Grieveson

The New Zealand dollar slipped back below 69 US cents as fears of a trade war between the world's major powers sapped investor sentiment and weighed on risk-sensitive assets such as stocks.

The kiwi decreased to 68.94 US cents as at 8am in Wellington from 69.01 cents yesterday. The trade-weighted index was at 73.32 from 73.36 yesterday.

Stocks on Wall Street declined, with the Dow Jones Industrial Average down 1.3 percent, as investors were spooked by the European Union aligning with China in its opposition to growing US protectionism. Chinese and the EU officials met at the seventh annual high-level economic and trade dialogue where they jointly expressed support for a rules-based multilateral trading system and oppose trade protectionism. Meanwhile, US Treasury Secretary Steven Mnuchin said reports that the White House planned to restrict Chinese investment were false and will apply "to all countries that are trying to steal our technology".

"Global equity markets have been rattled by focus on escalating US-China trade tensions but there has been limited spillover for currencies and bond markets," Bank of New Zealand senior market strategist Jason Wong said in a note. "The NZD spent most of the night below 0.69 but it has since recovered to around that level."

Wong said recent moves by the People's Bank of China looked like the central bank was "prepared to engineer a weaker currency in light of recent softer credit and activity data, and possible negative impact from the US-China trade war", with the yuan at its weakest against the greenback this year. The kiwi fell to 4.5059 yuan from 4.5080 yuan yesterday.

"A weaker currency is a tool at the disposal of China to counteract Trump’s trade measures, although the PBoC needs to be careful that it doesn’t spook the market and trigger resurgent capital outflows," he said.

No local data is scheduled today, although investors will keep tabs on Australian consumer confidence across the Tasman. The kiwi increased to 93.10 Australian cents from 92.92 cents yesterday.

The local currency edged up to 75.68 yen from 75.54 yen yesterday and fell to 51.92 British pence from 52.21 pence. It declined to 58.92 euro cents from 59.21 cents yesterday.