NZD bounces back as peace deal nearer

Key Movers

There is plenty to digest this morning after overnight headlines suggest a truce between Russia and Ukraine may be imminent, while trade tensions between the US and Canada tapered. The US dollar index moved lower as European currencies gained following reports that Ukraine was prepared to sign a US proposal of détente co-signed by Russia at the same time. While details of the 30-day truce are not yet known they are the first step to expanding negotiations for a broader peace agreement. The euro climbed 0.8% falling just short of a break above 1.0950, its highest level since October, while the Norwegian and Swedish kroners outperformed and the British pound pushed above 1.2950. In contrast, the Canadian dollar was the worst-performing major, falling as US-Canada trade tensions continued to simmer. President Trump threatened to double the steel and aluminum tax on Canada while substantially increasing tariffs on Canadian auto parts if Canada failed to drop its reciprocal tariff issued on US dairy goods and its 25% surcharge on electricity supplied to the States. As tensions spiralled Canada confirmed it would lift the surcharge on electricity if the US wound back threats to double steel and aluminum tariffs. The tempering of tensions helped the CAD climb off lows below US0.6890, recouping losses and trading back above US$0.6920 leading into this morning's opening.

Our attention now turns to US CPI data and the Bank of Canada policy meeting. We expect the BOC will cut interest rates by 25 basis points.