Image: White House official.
The U.S. is about to seal its first major trade agreement in the post-'Liberation Day' tariff era, which is bolstering market sentiment.
Although the first deal to be inked is with the UK, the fact that a deal on trade is being struck at all is the big message to markets.
It is the global significance that resonates with the New Zealand Dollar, and meant it topped the G10 leaderboard earlier on Thursday.
To recap, U.S. President Donald Trump issued a social media communication at 2AM BST:
"Big News Conference tomorrow morning at 10:00 A.M., The Oval Office, concerning a MAJOR TRADE DEAL WITH REPRESENTATIVES OF A BIG, AND HIGHLY RESPECTED, COUNTRY. THE FIRST OF MANY!!!"
Newspapers soon reported that UK officials were being lined up to meet Trump on Thursday, confirming that the UK had reached a deal.
This understandably helped the Pound, but it was the New Zealand Dollar that sat atop the performance table through the Asian and early European market sessions on Thursday.
Stock market futures rose following the announcement, confirming that investor sentiment received a boost. The NZD is positively correlated with this sentiment, and it jumped as a result.
In fact, the Kiwi is one of the best-performing major currencies when screened over the past month, a period that correlates with a broader easing in global trade tensions as Trump indicates he is now in a negotiating phase and peak uncertainty has passed.
"We believe the Trump administration changing its tariff stance in response to equity and bond market turbulence indicates some sensitivity to market stress," says Kurt Reiman, Chief Investment Office, UBS Global Wealth Management.
This inevitably means the harsh tariffs announced on April 02 'Liberation Day' won't stand and will be whittled down. With stocks rising in relief, it's little wonder that the NZD has hitched a ride higher.
Expect further easing in tensions to boost the Kiwi, as yesterday it was announced China has agreed to sit down with the U.S. and discuss a trade deal aimed at lowering tariffs in both countries.
U.S. Treasury Secretary Scott Bessent and Chief Trade Negotiator Jamieson Greer will meet China's economic chief, He Lifeng, in Switzerland over the weekend.
Be under no illusion, we aren't going back to pre-Trump tariff levels, but they certainly won't be as harsh as implied by the early April headlines, which offer scope for some NZ Dollar support to build.
An NZD Headwind: The Labour Market
Although global trade headlines are becoming more constructive, domestic headwinds continue to blow.
New Zealand released a soft employment report midweek that supports the case for further Reserve Bank of New Zealand (RBNZ) easing.
"The unemployment rate came in at 5.1%, and while better than expectations of 5.3%, declining hours worked, a fall in the participation rate, and rising underemployment is troubling NZ’s labour market," explains Sarah Ying, Strategist at CIBC Capital Markets.
She says the labour market is expected to soften further, with the latest RBNZ projections showing lackluster growth.
"Wages dropped by 2.6%, below the RBNZ’s forecast of 2.8%. Another 25bps cut is fully priced for May, with 77bps of easing in aggregate for the remainder of the year," says Ying.
This implies a decent amount of cuts ahead, which come on top of the already generous easing the RBNZ has delivered to date.
Easy policy helps explain a significant degree of NZD underperformance in recent months, and will continue to do so. However, any improvement in the trade picture can help provide a barrier to these headwinds.