NZD holds above key supports yet remains under pressure as yuan depreciation extended

Daily Currency Update

Choppy price action and wild swings across financial markets continued Tuesday and the US tariff agenda remains front and centre. The NZD faced early pressure after the People's Bank of China set a lower CNY reference rate as it closely monitors the yuan’s depreciation. With the CNY falling to its lowest level in 18 months spillover risk impacted the NZD. With USD/CNY now over 7.30 a move toward 7.60 could heap significant downside pressure on the NZD. Having edged lower the NZD found support amid a brief upswing in sentiment. Comments from President Trump and the White House that indicated negotiations with key trading partners were progressing positively. On a call with South Korea the President said “Things are looking good” while noting on China “They also want to make a deal, badly. But they don’t know how to get it started. We are waiting for their call and will make it happen”. The comments suggest the aggressive posturing may be a negotiating tool with the US going hard early to force the hand of trading partners with a view of scaling back. Having touched session highs just above US$0.5625 the NZD then retreated slipping back toward US$0.5550 as investors took stock and noted nothing has really changed. The NZD continues to plumb new lows against other counterparts, slipping below 0.5050 against the euro 0.4350 against the pound and 81 against the yen.

Our attention remains on tariff headlines and the ensuing turmoil. Trade will likely remain choppy through the near term.