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Australia, NZ dollars gain respite as China calls for calm

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The Australian and New Zealand dollars gained a respite from recent selling pressure on Wednesday, as Beijing's efforts to stabilise its currency soothed sentiment just enough to spark profit-taking on US dollar positions.

[SYDNEY] The Australian and New Zealand dollars gained a respite from recent selling pressure on Wednesday, as Beijing's efforts to stabilise its currency soothed sentiment just enough to spark profit-taking on US dollar positions.

The Aussie dollar got an added lift from solid data on domestic retail sales and crawled up to US$0.7403, moving away from an 18-month trough around US$0.7311.

The kiwi dollar reached US$0.6766, having touched its lowest since May 2016 at US$0.6688 earlier in the week.

Dealers cautioned that some of the bounce was simply due to a lack of liquidity with the United States on holiday and the selling could easily resume on Thursday.

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Much depended on the course of the Chinese yuan which managed to eke out gains after the country's central bank assured markets it would keep the currency stable amid heightened trade tensions.

Investors are on tenterhooks ahead of the July 6 deadline when the US administration is due to slap tariffs on US$34 billion worth of Chinese goods.

Beijing has said it would retaliate with tariffs on US products, an escalation that could endanger economic growth more broadly.

Global tensions are ratcheting higher by the day, fuelled by the foolish policies of foolish leaders," warned Saxo Bank's chief economist Steen Jakobsen in a quarterly outlook.

"Tit-for-tat trade wars and agendas that pander only to self-interest are jeopardising the global economy."

Australia's exports account for fully 22 per cent of annual economic output, making it very vulnerable to a global trade conflict. Data on Wednesday showed exports rose a healthy 4 per cent in May, led by iron ore, coal and liquefied natural gas.

Local retailers also did a bit better with sales rising 0.4 per cent in May, after an upwardly revised 0.5 per cent gain in April. While growth is still modest by past standards, it does point to a pick up in consumption for the second quarter.

Developments in New Zealand were less favourable as the latest global auction for dairy saw prices fall at the fastest pace so far this year. Dairy is the country's single biggest goods export.

In fixed-income markets, Australian bond futures were near multi-month peaks amid the general mood of risk aversion. The three-year bond contract added half a tick to 97.935, while the 10-year contract firmed 3 ticks to 97.4050.

New Zealand government bond yields were down around 2 basis points across the curve.

REUTERS