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US-Mexico reach trade agreement: risk sentiment improves

Published August 28, 2018

The Kiwi opens a touch higher against the USD this morning as the US and Mexico said they reached a trade agreement overnight. Markets reacted positively to the announcement and saw risk appetite return with the NZDUSD sitting just shy of the .6700 mark.

US and Mexico Trade Agreement, Pressure now on Canada

A senior US trade official announced last night that the US and Mexico have come to an agreement to overhaul the North American Free Trade Agreement (NAFTA), and also stated that talks with Canada will begin immediately in hope of reaching a final agreement by Friday. The Mexico-US talks largely focused on crafting new rules for the automotive industry with pressure now on Canada to agree to the new terms on auto trade and other issues to remain part of the three-nation pact. Trump has said if talks are not wrapped up by the end of this week, he’s open to negotiations with Canada, however also threatened that he can still put tariffs on Canadian-made cars if Canada did not join its neighbors.

The announcement saw US stocks and commodity currencies higher, as trade tensions ease.

German Business Sentiment Rises on Trade Truce Hopes

The euro rose overnight on reports of German business confidence rising for the first time in 9-months as companies concerns on escalating trade tensions ease. The report showed the sentiment indicator rose more than expected to 103.80 in August from 101.7 in July and vs forecast of 101.80. Markets will now be watching for the euro-zones inflation and employment data out on Friday.

Local focus this week will be the ANZ Business Confidence survey on Thursday.