NZD/USD hits five-month high on US-China trade armistice

• NZD/USD gapped higher at 0.6917 – a level last seen on June 25 – and is currently trading at 0.6905.
• The NZD likely picked up a bid on US-China trade truce.
• Extended risk-on action in the financial markets could push the NZD above the immediate hurdle of 0.6922.

The NZD/USD opened at a five-month high of 0.6917 on fading US-China trade tensions.

The US President Trump and his Chinese counterpart Xi Jinping reached a ceasefire weekend over the weekend under which the US will hold off imposing further tariffs on the US and in return China would buy a substantial amount of US goods.

That truce will remain valid for three months, during which both sides will negotiate a permanent trade deal.   The US will likely escalate trade war if parties fail to reach an.

The temporary pause in the trade war has put a strong bid under the risky assets. For instance, the S&P 500 is up 1.5 percent and oil benchmarks are reporting 4 percent gains. The Chinese yuan has gained 0.5 percent.

The risk-on action is boding well for the commodity dollars like the NZD and AUD. At press time, the NZD/USD is trading at 0.6906, up 7.5 percent from the yearly low of 0.6424 reached on Oct. 8.

China Caixin manufacturing PMI for November released a few minutes before press time, showed the activity improved slightly, but failed to lift the NZD, possibly because the details revealed a weakening domestic demand.  

It is worth noting that a temporary truce was highly anticipated and was more or less price in the last week. As a result, the S&P 500 futures may trim gains, in which case the NZD may have a tough time scaling the immediate resistance of 0.6922 (June 25 high). The resistance, however, will likely be crossed if the equities extend gains the EUR/USD picks up a strong bid.

NZD/USD Technical Levels