Kiwi dollar takes knock from Trump's talk on tariffs
Tuesday, 26 November 2024
The New Zealand dollar fell about a third of a US cent within minutes of US President-elect Donald Trump posting his plan to introduce large tariffs on Mexico, Canada and China as soon as he takes office in January.
The kiwi dollar staged a partial recovery but remained down about a quarter of a US cent at US58.2 in late afternoon trading on Tuesday.
BNZ senior market strategist Jason Wong said Trump’s announcement that he would immediately impose 25% tariffs on all imports from Mexico and Canada and an additional 10% tariff on China was clearly responsible for the dollar’s drop.
“The market is trying to get to grips with what the new regime and tariffs are going to look like,” he said.
Wong noted that Trump withdrew a threat to impose large tariffs against Mexico days before they were due to take effect last time he was president.
The same could happen again, he speculated.
“But there’s just a high degree of sensitivity around these sorts of announcements at the moment.”
New Zealand’s largest technology exporter, Fisher & Paykel Healthcare, would appear likely to be directly affected if Trump made good on his post.
It manufactures its medical devices in factories in New Zealand and Mexico, using the latter to supply much of the North American market.
Its shares were down 3.3% at $37.93 in late afternoon trading, while the NZX Top 50 index overall was down 1.3%.
Fisher & Paykel Healthcare, which is due to release its financial results on Thursday, has been approached for comment.
The company said in 2019 when Mexico was threatened by Trump with similar tariffs that it could redirect its Mexican output and it didn’t expect a major impact beyond increased freight costs.
Wong believed it would still have the capacity to redirect products it made in Mexico.
“Companies all around the world will be trying to work out how to get around these tariffs once they do come in”, which probably wouldn’t be for at least six months, he said.
“There’s plenty time to plan but everyone's got to expect the unexpected.”
Westpac chief economist Kelly Eckhold said the market reaction to Trump’s statement was not surprising.
The Reserve Bank, which will release its final monetary policy statement for the year on Wednesday afternoon when it is expected to cut the official cash rate to 4.25%, was likely to consider tariffs one of the “general risks” to the economic outlook, he said.
“I don't think there's enough definitively known for it to be able to put this into any sort of central scenario.
“But I think the Reserve Bank will have half an eye on the potential for exchange rate depreciation in the future, and that obviously makes it more complicated to keep inflation around 2%,” he said.