AUD surges as US/Japan trade deal drives upswing in risk sentiment

Key Movers

Price action through the last 24 hours has been driven by reports the US and Japan have reached a trade agreement. Risk assets surged as markets reacted favourably, adopting a risk on mood and propelling a risk rally through the Asian session and into overnight trade. The upswing in risk sentiment found added support on building expectations the EU will negotiate a similar deal with the US. Equities surged, and the US dollar index was driven lower as the euro, pound and commodity currency all enjoyed support.

Market expectations for a US/EU trade deal were bolstered in the wake of the US/Japan trade announcement. Analysts now expect the EU to negotiate a similar deal and avoid the threatened 30% tariff currently proposed if a deal cannot be struck. While the EU will demand exceptions across a number of key export sectors, namely aircraft, spirits and medical devices, markets expect a compromise will be reached. The euro pushed back above 1.1750 marking a high just short of 1.1775, while Sterling closed in on 1.36 and the yen forced the dollar back below 146.50.

With little of note on the macro agenda today, our attention remains affixed to trade headlines.