NZ dollar eases as tensions between US and China rise

US Secretary of State Mike Pompeo. Photo / AP

The New Zealand dollar was weaker after the United States formally rejected most of China's claims in the South China Sea.

The kiwi was trading at 65.38 US cents at 5pm in Wellington from 65.72 cents at the same time yesterday while the trade-weighted index was at 72.11 from 72.36.

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In the latest escalation of tensions between Washington and Beijing, US Secretary of State Mike Pompeo asserted that "Beijing's claims to offshore resources across most of the South China Sea are completely unlawful, as is its campaign of bullying to control them."

Pompeo said the world wouldn't allow China to treat the South China Sea "as its maritime empire."

China, which has been building military bases in the region also claimed by Brunei, Malaysia, the Philippines, Taiwan and Vietnam, responded that the US "deliberately distorts facts and international law."

Mike Shirley, a dealer at Kiwibank, said the currency had stabilised at about 65.40 US cents but when Asian share markets open weaker, that pushed the kiwi down another leg.

Late in the NZ day, China's Shanghai Composite Index was down more than 1 per cent.

Data showing Singapore's economy contracted 12.6 per cent in the June quarter compared with a year earlier didn't help sentiment either.

Much of California is back under lockdown after Covid-19 infections have spread rapidly across the state, the percentage of positive tests has risen, as has hospitalisations, and the death rate is climbing.

Other than such geopolitical risks, the market is awaiting a significant raft of data on Thursday, including local inflation figures for the June quarter, Australia's unemployment report and China's gross domestic product numbers.

That will be followed overnight by the European Central Bank's monetary policy committee meeting and US retail sales data.

The market is expecting the ECB to leave its monetary policy settings unchanged.

The New Zealand dollar was trading at 94.06 Australian cents from 94.26 cents at 5pm yesterday, at 52.06 British pence from 51.94 pence, at 57.61 euro cents from 58.05 cents, at 70.12 yen from 70.23 yen and at 4.5827 Chinese yuan from 4.5993 yuan.

The bid price on the two-year swap rate was at 0.1975 per cent from 0.1750 per cent, while the 10-year swap was at 0.7150 per cent from 0.7500 per cent yesterday.