The striking of a trade agreement between the US and the UK would not ordinarily make global headlines, yet Thursday’s news takes on more importance than meets the eye. Britain has unexpectedly jumped to the front of the queue in discussions with the White House and, as this is the first deal to be struck in the post-Liberation Day era, the details are likely to act as a blueprint for other countries’ negotiations. The main focus surrounded whether the 10% baseline tariff would be relaxed, or if the easing in restrictions would merely be limited to certain sectors. The fact that it is the latter raises doubts over the extent to which these tariffs can be negotiated away, and how far the President is willing to go to restore the “free” back into global free trade. Market participants didn’t seem to mind, however, and the mere news of progress on a de-escalation in the tariffs was enough to buoy the dollar, and lift the S&P 500 Index to its highest level since late-March.

AUD

AUD edged modestly lower versus the broadly stronger US dollar last week, but it remains comfortably higher in the past month amid optimism surrounding US-China trade relations. Talks over the weekend between the two economic superpowers were said to be positive. Reports from the US suggest that a deal has already been struck and that we’ll receive more details on Monday. Should investors be satisfied with what they hear, then we could see some gains in the CNY proxies today, including the Aussie dollar. Focus this week will be on the latest jobs report for April on Thursday, with economists eyeing a solid month of job creation around the 25k mark and an unchanged unemployment rate of 4.1%. Another 25bp rate cut from the Reserve Bank of Australia appears like a done deal at the bank’s May meeting next Tuesday, and this week’s data is unlikely to change that. It may, however, help dictate the tone of the RBA’s communications, particularly with regards to whether or not we can expect another rate reduction at the subsequent meeting in early-July.

NZD

The New Zealand dollar ended the week lower against a broadly stronger US dollar due to headlines of progress in conversations with China, an event that caused little material change for the kiwi. On the other hand, stronger Chinese commercial data released on Friday provided a boost to Asian currencies and China proxies. Meanwhile, New Zealand’s April labor report strengthened the case for a rate cut by the end of the month, with employment growing by a modest 0.1%, leaving the unemployment rate unchanged at a high 5.1%. As the last major data release before the RBNZ’s next meeting, this report supports the market’s expectation of a 25 bp rate cut as the most likely outcome. Markets are also pricing in two additional 25 bp cuts before year-end, aligning with our view. With limited tier-one data expected in the coming weeks, the kiwi’s movements will likely be driven by external events.

USD

News of the first post-Liberation Day trade deal was greeted positively by markets and the dollar on Thursday, which advanced by almost 1% on the euro. As mentioned, the main takeaway from the deal is that the 10% baseline tariff rate will remain in place, despite concessions in a handful of sectors, which may be a sign of things to come. While this raises a few concerns as to how far Trump is willing to go to de-escalate the wider tariff war, market participants just seem pleased at the sign of progress, and relieved that the White House appears willing to offer some degree of flexibility around the tariffs. Wednesday’s FOMC announcement can also be viewed as hawkish. The vote on rates was unanimous in favour of no change. Powell appeared upbeat on the economy, which he again described as ‘solid’, while he brushed aside the Q1 GDP contraction, which he attributed to nothing more than an “unusual swing” in trade. He warned that US inflation and unemployment could be higher under the tariffs, but he also stressed that there was no need for the Fed to be in a hurry to lower rates. These remarks all but confirm a pause at the June meeting, and with the tariffs set to keep US inflation higher for longer, we see a risk that Trump’s policies put pay to anything but gradual cuts during the rest of the year - the exact thing that the President has stringently lobbied against.

CNY

In what feels like a long time but was just over a month, USD/CNY has returned to levels from before the infamous ‘Liberation Day’. US-China talks in Geneva appear to have yielded some progress in the rocky relationship, which could help the yuan attract bids in the near term. Other newsflow from China has also been encouraging of late. Trade data at the beginning of Q2 was much stronger than expected, with exports growing by 8.1% YoY as shipments to Southeast Asia made up for the losses in trade with the US. China also announced a series of stimulative actions to support the economy, including lowering rates and RRR reduction, as well as targeted measures. Moving forward, markets should first and foremost digest the US-China trade talks with other news likely in the background for now.