NZD gains against greenback on US-China trade talks

The New Zealand dollar climbed against its US counterpart amid optimism about a revival of trade talks between the US and China, while progress in Brexit negotiations also underpinned the mood.  

The kiwi traded at 67.49 US cents at 8.30am in Wellington from 67.10 US cents late Tuesday. The trade-weighted index was at 73.99 from 73.97.

"Renewed optimism about the US-China trade relationship has buoyed risk appetites and lifted kiwi off support," ANZ Research senior economist Liz Kendall and senior macro strategist Philip Borkin said in a note. 

"While it could look to test 68 cents again today, it remains within a reasonably well-established range here so something more substantial would be needed to see a break," Kendall and Borkin noted. 

Agreement between British and European Union negotiators on a draft Brexit agreement also bolstered sentiment. The UK Cabinet is set to discuss the draft deal on Wednesday.

“The UK appears to be inching closer to achieving a Brexit deal,” Kendall and Borkin said. “A draft deal has been reached between negotiators, including agreement on an Irish border backstop, which has been the key sticking point in negotiations.”

“Although Prime Minister May still faces a significant challenge getting Brexit through Parliament, markets are becoming a little more optimistic that a deal will be achieved, with GBP making gains,” according to Kendall and Borkin. “If there is a Brexit deal, there will be increased conviction from the Bank of England that rate hikes will be necessary." 

The New Zealand dollar traded at 52.09 British pence from 52.36 pence Tuesday, and was at 59.90 euro cents from 59.96.

Another point of focus is the Italian government’s budget plans, which are at odds with European Union demands and debt rules. 

“Italian bond yields continue to increase on concern that the government will resist changing its budget deficit target,” Kendall and Borkin noted. “Coalition leaders and the finance minister are meeting tonight to agree on a response to the EU regarding the budget plan." 

“Defiant words can be expected, although minor budget tweaks are possible, including an offer of more privatisations,” they said, adding that Italy is expected to stick to its 2.4 percent of GDP deficit target, which the EU has rejected.

The kiwi traded at 93.71 Australian cents from 93.37 cents Tuesday.

Investors will eye Australia's latest wage price index, slated for release later in the day.

“Topside resistance continues to contain this cross despite the weaker Australian business confidence figures yesterday,” Kendall and Borkin said. “Today it is about wages, and our Australian colleagues are looking for a solid print.”

The kiwi was at 4.6923 Chinese yuan from 4.6913 yuan and at 76.85 yen from 76.91 yen.

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