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Australia, NZ dollars sideswiped in global dash to safety

[SYDNEY] The Australian dollar was on the defensive on Tuesday as a rout in global share markets sparked a flight to safe havens and local economic data proved too mixed to offer much support.

The Aussie was hovering at US$0.7870 after slipping another 0.5 per cent overnight. That came on top of a 1.5 per cent dive on Friday when world stock markets were routed.

The sell off accelerated on Monday with the Dow suffering its largest daily points drop in history and the S&P 500 shed US$1 trillion in market value.

The Aussie is often sold during times of stress given the country is an open economy leveraged to commodity prices and global growth that runs a perennial current account deficit. Which was why its biggest fall came against the safe-haven Japanese yen, where it shed 1.4 per cent overnight to a seven-week trough of 85.86 yen. It was last at 85.90, with bearish technicals showing a risk of a retreat to 85.25.

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The story was much the same with the New Zealand dollar , which was stuck near a two-week low around US$0.7264 after falling 0.5 per cent overnight.

The slump in share markets only reinforced expectations the Reserve Bank of Australia (RBA) would keep interest rates at 1.5 per cent after its Tuesday policy meeting, and again signal it was in no rush to change tack.

Investors further pushed out the timing of any hike with futures implying that November was now a 50-50 chance, compared to August just a week ago. A move to 1.75 per cent is not fully priced in until February next year.

Domestic data out on Tuesday did nothing to change the steady outlook. Retail sales were a little softer than expected with a fall of 0.5 per cent in December, but real sales for the whole fourth quarter were still up a solid 0.9 per cent helped by widespread discounting.

That pointed to a welcome rebound in household consumption that should have supported economic growth in the quarter, but also to subdued retail inflation.

The global flight from risk sparked a major rally in Australian bonds. The 10-year futures contract jumped 11.5 ticks to 97.1800, having hit an 11-month low of 97.0450 at one stage overnight.

The three-year bond contract climbed 9.5 ticks to 97.865, and away from its recent rough of 97.690.

REUTERS

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