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A resolution to the U.S. tariff question is in train, and this is helping markets recover.
With sentiment improving, the New Zealand Dollar is amongst the leaders in the G10 pace, confirming it to be a beneficiary when investor confidence rises.
The U.S. pushed back the deadline for countries to negotiate away the harsh tariff levels announced by President Donald Trump on April 02, when he revealed his 'Liberation Day' levies.
Letters were sent to a number of countries warning that unless there was movement, they would see a big jump in tariff rates.
The letters jolted markets somewhat, with the NZD dropping in response. But, as it became clear the letters were intended to nudge other nations towards a deal, relief helped stocks and the Kiwi currency recover.
Gains put puts it near the top of the performance board of the world's major currencies:
The Pound to New Zealand Dollar exchange rate lower on the day to 2.2616, the Euro to New Zealand Dollar is steady at 1.9522. The New Zealand Dollar is higher by 0.40% against the U.S. Dollar at 0.6018.
"The FX market is in risk on mode today," says Kathleen Brooks, research director at XTB. "This is a sign that risk sentiment is back on."
Above: GBP/NZD at 5-minute intervals showing the improved sentiment towards NZD.
"Assuming deals are done with the major partners, the U.S.’s effective tariff rate is likely to rise further (to ~18% from the current 15.8% level). Markets remain complacent to this, taking the approach that costs will be absorbed across the chain," says Sam Hill, Head of Market Insights at Lloyds Bank.
14 countries received letters from the White House, and attention was centred on Japan and South Korea, where a 25% was applied. Both countries have indicated they will continue negotiating.
The EU and India continue to negotiate, and the sense is that a some kind of primary agreement will be reached soon.
Regarding the possibility of countries continuing to negotiate, U.S. President Donald Trump said: "maybe adjust a little bit, depending," and "we're not going to be unfair".
The tariff levels are "final, but if they call with a different offer, and if I like it, we'll do it," he explained.
"The comments will also provide encouragement that the tariff deadline could be extended for a third time. It helps to explain why the initial market reaction to the tariff letters has been relatively muted," says Lee Hardman, Senior Currency Analyst at MUFG Bank Ltd.