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Australia, NZ dollars hold ground in the face of trade headwinds

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The Australian and New Zealand dollars proved surprisingly resilient on Friday after President Donald Trump doubled down on his tariff tit-for-tat with China, sandbagging US stocks and risk assets in general.

[SYDNEY] The Australian and New Zealand dollars proved surprisingly resilient on Friday after President Donald Trump doubled down on his tariff tit-for-tat with China, sandbagging US stocks and risk assets in general.

Mr Trump said late Thursday he had instructed US trade officials to consider US$100 billion in additional tariffs on China, fuelling an already heated trade dispute between the world's two biggest economies.

The Aussie dollar fell as much as 30 ticks to US$0.7658 immediately after the news, but found solid support around US$0.765 as it has done for more than a week now.

As the session wore on, the Aussie clawed back up to US$0.7687 as the market awaited a response from China, though the country is on holiday on Friday.

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Market voices on:

"Traders will be nervous about hammering too hard in Asia and then getting reversed in the US session when someone in the Administration makes a comment to try to temper the reaction to the President's comments," said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.

Yet he also cautioned that the Aussie remained very vulnerable given it was a liquid proxy for global growth.

"If this does escalate, as the President's new initiative suggests it might, then all heck can break loose as traders and investors seek to de-risk their portfolios," he added.

There was some talk the Aussie might be benefiting from M&A flows related to Unibail-Rodamco's proposed US$16 billion buy-out of shopping mall giant Westfield Corp.

The deal won Australian regulatory approval last week and is set to finalise on June 7.

The price response was much the same from the kiwi dollar, which initially dipped to US$0.7256 before steadying at US$0.7266. That left it with a gain for the week of 0.2 per cent.

The currency had spent the week bouncing around within a relatively tight range, as global risk sentiment waxed and waned on headlines over the trade dispute between the US and China.

The next major test for both currencies will be US payrolls data for March due later Friday. Key will likely be wages since a high number would rekindle talk of faster US rate hikes and further erode risk sentiment.

New Zealand government bonds eased, sending yields one basis point higher at the long end of the curve.

Australian government bond futures edged up a tick as sovereign bonds benefited from the latest trade rumblings. The three-year bond contract added one tick to 97.830, while the 10-year contract rose half a tick to 97.3250.

REUTERS