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Australia, NZ dollars hit as Trump raises stakes in trade war

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The Australian and New Zealand dollars were dealt a blow on Wednesday after the United States threatened to slap further import duties on Chinese goods, fuelling fears of a full-blown trade war.

[SYDNEY] The Australian and New Zealand dollars were dealt a blow on Wednesday after the United States threatened to slap further import duties on Chinese goods, fuelling fears of a full-blown trade war.

Washington decided to impose tariffs on an extra US$200 billion worth of imports from China after efforts to negotiate a solution to the dispute failed to reach an agreement, senior administration officials said on Tuesday.

The news rattled Asian markets and knocked the Australian dollar off a 3-1/2 week top to as low as US$0.7407. It was last down 0.5 per cent at US$0.7423.

The New Zealand dollar fell 0.3 per cent to US$0.6815, retreating from a high of US$0.6857 touched on Tuesday.

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China is Australia's single biggest export market and easily the largest buyer of its commodities, so any development that risks a slowdown in China is seen as negative for the Aussie.

The currency is also used by investors as a liquid proxy for wagering China risks, global growth and resource prices in general.

The Aussie has fallen almost 1 per cent since early June when worries of a trade war began surfacing after a Group of Seven summit in Canada laid bare a deep rift on trade between US President Donald Trump and other leaders.

Wednesday's additional tariffs came as a surprise to many analysts who had suspected Mr Trump's threats were a negotiating tactic.

"Fears are now strongly held this escalation will be met with a Chinese response and possibly counter-response from the United States," Greg McKenna, Sydney-based chief strategist at AxiTrader, said in a note.

"That puts the AUD/USD as an available and liquid proxy for all the worst fears about the impact of the trade war. A break of US$0.7393 could open the floodgates to re-test lows."

New Zealand government bonds rose on a general safe-haven bid, sending yields about 2.5 basis points lower at the long-end and half basis point at the short-end.

Australian government bond futures gained, with the three-year bond contract up 2.5 ticks at 97.930. The 10-year contract added 2 ticks to 97.380.

REUTERS