It was more of the same again overnight, with US stocks pushing higher and the USD weaker. The US administration announced it was increasing tariffs on imported solar panels and washing machines, although this hasn’t really dented sentiment. The NZD continued to rise and is now around 0.735.
Yesterday, the US administration announced it was imposing increased tariffs of up to 50% on imported washing machines and up to 30% on imported solar panels. While Trump had pledged to get tough with America’s trade competitors during the election campaign, the move yesterday was the first time he had directly signed off on increased tariffs in his time in office. The key question is whether the move marks the start of a shift towards more protectionist trade policy or whether it was a symbolic gesture to appeal to a section of his constituency. The initial market reaction seems to suggest the latter as global stock markets rose regardless, although it’s certainly one to watch.
US stocks moved higher again overnight, buoyed by better than expected earnings results. The S&P 500 was up around 0.2% while the NASDAQ was up 0.6%, both new record highs. The latter was boosted by Netflix, which jumped 10% after reporting faster than expected growth in subscription numbers and providing better than expected guidance for first quarter earnings. Of the 68 companies that have reported earnings so far, 82% have beaten analyst expectations.
The USD is generally weaker again, with Trump’s imposition of tariffs seemingly the latest excuse to sell the dollar. The NZD was one of the best performing currencies again overnight, reaching a high of 0.7365 before falling back a little as we speak. As we noted in our Weekly yesterday, the NZD has been supported by buoyant global risk appetite, recent rises in dairy prices and probably some short-covering activity. The key focus for the NZD this week will be Thursday’s release of CPI.
The JPY was the top performing currency, rising half a percent against the USD to a three month high, despite the rise in global stock markets (the yen has historically been seen as a safe haven currency). At the BoJ’s meeting yesterday, the central bank kept their inflation and growth forecasts unchanged and Kuroda said “we’re in no condition yet to debate the timing and method of an exit from ultra-easy monetary policy”. But the yen reacted positively as the BoJ upgraded its language around inflation expectations, which they said had been stable recently, rather than falling.
Japanese bonds were largely unmoved on the BoJ. US Treasury yields have fallen a few basis points overnight on no real news, although they remain close to recent highs. The 10 year Treasury yield is 2.63%, having reached a 3-year high of 2.66% earlier this week.
The AUD was one of the worst performing currencies overnight, falling almost half a percent, despite the USD weakening against most of the G10. The 3.5% fall in iron ore futures prices yesterday may have contributed to its poor performance, as well as a failure to break convincingly above 0.80. Consequently, the NZD/AUD has risen sharply over the past 24 hours, although at 0.92 it is still within the range it has traded the last few weeks (albeit at the top end).
The CAD and MXN also fell overnight, possibly because the market extrapolated Trump’s imposition of tariffs to tougher NAFTA negotiations, which kick off again this week.
In the day ahead, we receive the UK employment report and the European PMIs, while more US companies will also be reporting earnings. Later this week the focus will turn to the ECB meeting and US GDP.
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