NZD lurches higher as US and Japan finally broker a trade deal
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Daily Currency Update
The New Zealand dollar surged back through US$0.60 through trade on Wednesday, swept up in a broader risk rally following reports the US and Japan had an agreed trade deal. Markets reacted favourably to the deal, driving gains across risk assets and propelling the NZD through US$0.60 and toward a two-week high just short of US$0.6050. Having touched intraday highs at US$0.6046, the NZD has upheld gains through the full overnight session and opens this morning at US$0.6043.We expect little market reaction to RBNZ Chief Economist Paul Conway’s address this evening, and our attentions instead turn to US/EU trade negotiations. We anticipate a deal will be struck with the Japan agreement used as a template. Assuming a compromise can be reached ahead of the August 1 deadline, risk assets should enjoy an extended upswing, potentially leading thrusting the NZD through resistance and US$0.61.
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.
Expected Ranges
- NZD/USD: 0.5980 - 0.6100 ▲
- NZD/EUR: 0.5100 - 0.5200 ▲
- GBP/NZD: 2.2300 - 2.2600 ▼
- NZD/AUD: 0.9100 - 0.9200 ▲
- NZD/CAD: 0.8150 - 0.8280 ▲