US/China tensions are on the rise and with it, the fall in market confidence. The US ordered the closure of the Chinese Consulate in Houston, Texas, following the arrest of industrial spies allegedly attempting to steal IP surrounding vaccine development. Geo-Political tensions have been on the rise, between the US (and European allies) and China, since the virus was unleashed on the world, destroying the global economy and wreaking havoc. China has also taken the opportunity to further their political interests in their region. Border disputes between India, Taiwan and the South China Sea have all been aggravated. The US has approached key Western allies for international support.
The rising tensions are a ‘clear and direct’ threat to the global supply chain and equity markets headed south, as a result. This will negatively impact key participants in the existing supply chain, namely, trade exposed commodity countries. The AUD beat a retreat back to 0.7100, while the NZD retraced to 0.6620, ahead of key trade data. The impact was further exaggerated, considering the softer reserve. The EUR had earlier regained 1.1600, while the Yen had traded 106.70.
NZ Trade data may impact local markets, as the Australian flash PMI data may, but the threat to the Chinese supply chain is a key vulnerability.