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Australia, New Zealand dollars dare to hope on Sino-US trade truce

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The Australian and New Zealand dollars edged higher on Thursday as signs of progress in the Sino-US trade dispute supported risk assets and commodity prices.

[SYDNEY] The Australian and New Zealand dollars edged higher on Thursday as signs of progress in the Sino-US trade dispute supported risk assets and commodity prices.

The Aussie dollar firmed to US$0.7124, well above the week's low of US$0.7052. It faces resistance around US$0.7130 and a big chart barrier at US$0.7168.

It reached a one-month top on the safe-harbour yen at 79.45. The New Zealand dollar crawled up to US$0.6798 and away from its recent trough at US$0.6739.

Trade talks between the United States and China made "good headway" last week in Beijing and the two sides aim to bridge differences this week, White House economic adviser Larry Kudlow said.

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The White House also announced President Donald Trump will meet on Thursday with Chinese Vice Premier Liu He in Washington.

The Aussie had rallied on Wednesday after strong economic data led investors to lengthen the odds on a cut in interest rates from the Reserve Bank of Australia (RBA).

A solid survey on the Chinese service sector also helped counter global growth fears and lifted risk assets broadly.

The futures market is now fully priced for an RBA rate cut in September, compared with August before the data.

Also underpinning sentiment has been a rousing run for iron ore, Australia's biggest export earner.

Iron ore futures in China saw their best day in seven weeks on Wednesday, extending a record-breaking rally amid supply disruption concerns.

Rising prices for the steel-making mineral had already helped deliver a record trade surplus in February. Earnings from metal ores and minerals jumped almost A$1 billion in the month alone and another strong result is expected for March.

Josh Williamson, an economist at Citi, estimated Australia's current account deficit could shrink to around 0.8 per cent of gross domestic product in the first quarter, from 1.5 per cent in the previous quarter.

"This in turn reduces Australia's reliance on foreign savings and makes it less vulnerable to external financial shocks," he said.

Mr Williamson also estimated payouts included in the government's budget this week would pump around A$7.3 billion into the economy during the third quarter of this year, adding between 1 per cent and 1.5 per cent to retail spending.

"The data and the moderate budget stimulus will buy the RBA more time to neutrally monitor developments," he added.

All of which shaved some of the recent stellar gains from Australian government bond futures. The three-year bond contract was down 4 ticks at 98.595, while the 10-year contract lost 6 ticks to 98.0950.

New Zealand government bond prices also fell back, pushing yields up as much as 11 basis points. 

REUTERS