Today I can say happy Friday with optimism because it is, indeed, a happy Friday. Why? Well, prospective foreign currency buyers and lovers, today we have news that the 20-month long trade war between the US and China might finally be on the way to ending. This news was incredibly well received by markets, improving risk sentiment and supporting ‘risky investments' like the NZD. With this in mind, one Kiwi dollar will buy you:
Since this time last week, the NZD has made gains against the JPY, EUR, GBP and THB, which is brilliant news for those of us planning a Christmas getaway that requires travel money. Ensure you don't miss out on any further rate improvements, and protect yourself from rate fluctuations, with Rate Move Guarantee. It's free, and if the rate improves within 14 days of purchase we will refund you the difference!* Yeehaw.
So, what's the goss on the trade war?
Long story short, the US and China have been playing tit-for-tat for the last 20 months by increasing tariffs on each other's exports. This has severely impacted not only their economies but the economies and currency value of their trading partners. New Zealand is one of the said partners, and the ebbs and flows of the trade war have contributed to some pretty gnarly lows on the Kiwi dollars behalf.
Officials from the US and China have recently been negotiating a stage one deal. There wasn't a lot of optimism surrounding the negotiations, as the same thing has happened in the past to no avail. Today, however, we have finally be greeted with a glimmer of hope.
Yesterday, a Chinese commerce ministry spokesperson said that negotiators on both sides have agreed to remove tariffs in phases. First up, the fact that Beijing has said this is promising, as Trump has previously been the first to announce things that weren't corroborated by China.
Although markets are currently awaiting the US to confirm what Beijing has said, the prospect of a gradual decrease of tariffs from both signs has lifted market spirits and spurred risk appetite. If / when the US does confirm, there is potential for the Kiwi dollar to benefit even more.
Any improvement in the trade war is good for New Zealand and the Kiwi dollar. China is one of our biggest trading partners, so the adverse effects of the trade war on China's economy were spilling through to New Zealand's economy. Fingers crossed the US confirms these reports soon, and more efforts are made towards a workable trade agreement and truce between the world’s two biggest economies.
On Wednesday jobs data for quarter three was released and came in slightly below market expectations. Employment growth slowed from 0.8% in the second quarter to 0.2% this quarter, which pushed the unemployment rate from 3.9% to 4.2%. These figures were disappointing to investors and, in turn, put downward pressure on the value of the kiwi dollar.
Markets care about employment because it is intrinsically linked to wage growth. Increasing unemployment generally puts the breaks on wage growth which can negatively impact inflation. Weak inflation weighs on economic growth and the overall performance of the economy and currency.
After these results, markets are now torn on whether the Reserve Bank of New Zealand will cut interest rates at their meeting next week. If they decide to keep rates on hold, it is good news for the NZD, that may see further upward pressure on top of that already experienced after the positive trade news.
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