Australia, New Zealand dollars dogged by China worries, brace for US GDP

[SYDNEY] The Australian and New Zealand dollars nursed hefty losses on Friday, as Sino-US trade concerns refused to fade away and their US counterpart benefited from talk of strong growth figures at home.

The Aussie dollar had peeled back to US$0.7386, having shed 1 per cent overnight against a broadly firmer US currency.

Some of the retreat was technical as the Aussie again failed to break the US$0.7484 barrier which has held since mid-June. If it ends the day at current levels it will be the seventh week in a row the Aussie has finished within a quarter cent of US$0.7400.

Investors were also unnerved by speculation the White House would use its truce on trade with the European Union to focus on its tariff battle with China.

Sources said one key aspect of the deal was that both sides had agreed to work together to tackle China's market abuses.

China is Australia's largest export market and the world's biggest buyer of commodities, and anything that threatens free trade with Beijing is taken as negative for Australia.

"If China's relations to the west remain fractious then the trade, growth and demand for raw materials may be diminished," noted analysts at Citi.

The US dollar also got a helping hand from the head of the European Central Bank, Mario Draghi, who backed market bets that EU interest rates would not be raised until October 2019 at the earliest.

That prompted a sharp sell-off in long euro positions which lifted the US dollar across the board.

Dealers were now on edge ahead of US gross domestic product figures later in the session where rumours tipped an outcome well above the 4.1 per cent median forecast by analysts.

Domestically, data showed Australian producer prices were remarkably tame in the second quarter, rising only 0.3 per cent despite a surge in petrol costs.

Annual growth in producer prices was a modest 1.5 per cent, suggesting firms were choosing to absorb higher costs rather than jack up prices - another reason why consumer inflation remains uncomfortably low.

Across the Tasman, the New Zealand dollar was back at US$0.6780 after encountering resistance around US$0.6850/60, a level that has held solid for a whole month now. Support is seen around US$0.6720 and US$0.6688.

The currency was now poised for a weekly drop of 0.4 per cent.

New Zealand government bonds gained, sending yields 3 basis points lower at the long end of the curve.

Australian government bond futures were mixed, with the three-year bond contract flat at 97.885, while the 10-year contract firmed 1.5 ticks to 97.3250.

REUTERS