BNZ currency strategist Jason Wong said Mr Trump’s trade policy was the biggest concern for the US economy and US dollar. Mr Wong was hopeful trade policy was "only tweaked rather than overhauled" and in the meantime was hopeful he could treat that scenario as only a risk factor for the US dollar.
"Trump’s economic policies are more inflationary than the [Democrat candidate Hillary] Clinton alternative, driven by more expansionary fiscal policy," Mr Wong said in a currency update.
The inflationary component meant there was more chance of tighter US monetary policy and a stronger US dollar, plus, there was a possible change to taxing offshore US company profits which could also support the US dollar, he said.
Mr Wong said BNZ projections embodied a stronger US dollar outlook, with "the Trump factor" adding weight to that view, and he maintained New Zealand dollar forecasts of US72c by the end of 2016 and down to US67c by the end of 2017.
On Friday the New Zealand dollar extended its decline amid speculation Mr Trump’s policy plans such as tax cuts and infrastructure spending would stoke the American economy and inflation.
The kiwi fell to US72.10c on Friday morning from US72.66c late on Thursday.
Expectations Mr Trump’s policies would boost spending and inflation helped US long-dated Treasury yields rise to their highest in more than 10 months last week, Reuters reported.
Yields on benchmark 10-year notes and 30-year bonds had their largest one-day rise in years last Wednesday and added to gains on Thursday after a weak 30-year bond auction.
Higher interest rates for US Treasuries raised the value of the dollar by making dollar-denominated assets more attractive to investors, Reuters said.
Mr Wong said while the US election was an unexpected result, the election hasn’t really reduced the level of uncertainty about the outlook.
"The Trump victory was very much unexpected by the market and our central forecasts have long assumed a Clinton victory," he said.
The key questions were whether Mr Trump would tone down the policy rhetoric now that he was president-elect, and how much sway his fellow Republicans would have changing policy, Mr Wong said.
"Will Trump go for the jugular and aim to tick off all of his key policies, or will he take a more targeted approach and put more emphasis on some, at the expense of others?" Mr Wong questioned.
The core assumption of the BNZ’s foreign exchange forecasts has been a positive US dollar outlook. That was centred on the view that the Federal Reserve hiked interest rates in a world where other major central banks, including New Zealand’s Reserve Bank, are either still easing policy or keeping policy unchanged.
The market expects the Federal Reserve to hike its interest rate in December and next year, Mr Wong said.
One of Mr Trump’s fiscal bugbears was US tax policy encouraged US corporates to keep their offshore profits offshore, Mr Wong said. A widely accepted estimate was that $US2.4trillion of accumulated profits of large US corporates was held overseas.
"Trump advocates a one-off repatriation tax of 10% and a lower tax rate going forward that would reduce the incentive for companies to hoard cash overseas and bring it back to the US instead," Mr Wong said.
The implication was positive to the extent it would encourage spending in the US, he said.
