NZ dollar falls on US tariff fears

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The New Zealand dollar fell as the imposition of new tariffs on Canadian lumber exports to the US stoked fears about what growing trade protections will have on trade-orientated nations.

The kiwi fell to 69.26 US cents as at 5pm in Wellington versus 69.48 US cents as at 8am and 70.33 cents late yesterday. It was at 75.05 on a TWI basis.

US Commerce Secretary Wilbur Ross announced duties averaging 20 per cent on Canadian softwood lumber, a move that follows US President Donald Trump's criticism of Canada's tariffs on imports of US milk products, and weighing on the Australian dollar, the South African rand and the kiwi. Meanwhile, demand for the greenback was bolstered by several solid earnings reports in the US and from reports that Trump's tax reform proposals, due to be announced on Wednesday, would include a slashing of the corporate tax rate and lower taxes on offshore earnings.

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The market reaction was "head scratching" as "if one of our competitors - Canada - is lumped with tariffs then that should actually be good for New Zealand, as long as the tariffs don't affect us," said ANZ Bank New Zealand senior economist Phil Borkin said. However, "it does highlight the risk that's where the world is going and clearly it won't be good if it broadens for a small country like New Zealand."

The kiwi initially gained against the Australian dollar when Bureau of Statistics data showed consumer prices rose slightly less than expected in the first quarter in Australia. However, it pared those gains as "it wasn't massively different to expectations," said Borkin. He added that it underscores the two economies are at different points in the cycle. Given there are signs of inflation emerging in New Zealand, Borkin said he expects the central bank to lift rates here before the Reserve Bank of Australia does. As a result, a rebound toward the mid-90s may be on the cards, he said. The kiwi dropped to 92.06 Australian cents versus 92.46 late yesterday.

Looking ahead, markets will be focused on Trump's tax reform proposals, due later in the global trading day. The fact that the US dollar is gaining means there is some optimism there may be more detail but given the administration's track record to date there is some uncertainty, he said.

The kiwi fell to 63.28 euro cents from 64.30 cents as the euro continues to benefit from the view that the French election result was "not quite as worrying as it could have been," said Borkin.

The local currency fell to 53.94 British pence from 54.64 pence and declined to 77.05 yen from 77.16 yen. It dropped to 4.7674 yuan from 4.8085 yuan.

New Zealand's two-year swap rate fell 2 basis points to 2.31 per cent and 10-year swaps gained 1 basis point to 3.38 per cent.