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Australia, New Zealand dollars flinch from renewed Sino-US trade fears
[SYDNEY] The Australian and New Zealand dollars took a sudden spill on Tuesday after White House trade adviser Peter Navarro said the US trade deal with China is "over", sparking a wave of risk aversion.
Dealers were unsure how serious the comments were, but if the deal were to actually collapse investors would likely fear a renewed Sino-US trade war which could hurt Australia as a major exporter to China.
The news slugged equity markets, sending futures for the S&P 500 down 1.3 per cent. Both the Aussie and kiwi have been closely correlated with US stocks recently as a bellwether of risk.
The Aussie quickly slipped 0.4 per cent to US$0.6878, unwinding some of Monday's 1.1 per cent bounce. It has solid support at US$0.6800, while resistance lies at US$0.6977 and the recent 11-month top of US$0.7069.
The kiwi dollar slid 0.4 per cent to US$0.6510, having been as far as US$0.64996 at one stage. It had rallied 1.2 per cent on Monday from a low of US$0.6375 as markets had been generally optimistic on the global economic outlook even as the coronavirus spread.
The Sino-US trade jitters overshadowed a surprisingly upbeat survey of Australian businesses which showed activity was recovering from the lockdowns of April and May.
In particular, the CBA-Markit PMI for services surged to 53.2 in June, after plunging to just 25.5 in May,
"The June PMIs are consistent with our view that we are now past the low point in economic activity," said Gareth Aird, head of Australian economics at CBA.
"Overall conditions in the private sector are still very soft, but there were a few encouraging pieces of information in the PMIs."
Bond markets were little changed as investors waited for some clarity from the White House on the China deal. The Australian three-year bond contract was off half a tick at 99.720, while the 10-year contract dipped 1 tick to 99.1050.
The kiwi market is awaiting a policy announcement from the Reserve Bank of New Zealand (RBNZ) on Wednesday which is expected to see rates stay at record lows and may include more information on the chance of an eventual shift to negative rates.