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US-China trade war – what’s it mean for NZ?

Although he can identify no major New Zealand stocks experiencing direct damage as a result of the US-China trade war, Milford Asset Management Portfolio Manager Mark Riggall says there is collateral damage, including a weaker New Zealand dollar.

“I think you can point to some of the factors causing the weakness to the New Zealand dollar as being a direct result of the trade war. The trade war is causing lower global growth. That means, generally speaking, there is lower demand for our products that we’re exporting – or perceived lower demand. If you couple that with a slowing domestic growth profile anyway and lower interest rates on the domestic front and the ingredients are in place for the further weakening of the New Zealand dollar. The way things are going, I see the path for the New Zealand dollar continuing to trend lower.”

There are fears that the trade war is widening on a second front and morphing into a currency war. The Chinese yuan has depreciated and President Trump is putting pressure on the US Federal Reserve to drive the US dollar down. In a series of tit-for-tat devaluations, Mark Riggall says the New Zealand dollar would probably go up.

“In that scenario you would see the New Zealand dollar appreciate because we’d be fairly powerless to do anything to stop our currency from looking relatively more attractive. Added to that, we also have a better domestic growth situation than they’ve got overseas and probably relatively higher interest rates.”

Perversely, Kiwi agricultural exports could suffer more from a trade deal between the US and China than they would if the trade war escalates.

“It’s not necessarily an escalation of the trade war that might cause damage for our exporters. Let’s paint a scenario where there’s a trade deal that happens between China and the US. As part of that deal, China agrees to buy more meat products from the US. That could reduce demand for New Zealand meat exports and that would be more detrimental potentially than the escalation of the trade war.”

You can also view Mark’s interview discussing these and related issues if you click here.

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