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Australia, NZ dollars on slippery slope as trade tensions flare

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The Australian and New Zealand dollars extended losses on Friday and were poised to end the week in the red amid worries about escalating tariff tensions between the United States and China.

[SYDNEY] The Australian and New Zealand dollars extended losses on Friday and were poised to end the week in the red amid worries about escalating tariff tensions between the United States and China.

The Australian dollar was a tad weaker at US$0.7258 after three straight sessions of declines and was at its lowest level since Aug 24. The Aussie is now within spitting distance of a more than 1-1/2 year trough of US$0.7203 touched earlier in the month.

For the week, the currency is set to end 0.9 per cent lower.

The New Zealand dollar eased 0.1 per cent to US$0.6648 from Thursday's high of US$0.6717. For the week, the kiwi was so far down 0.7 per cent.

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The spectre of a full-blown Sino-US tariff war has weighed on the antipodean currencies since the start of the year.

The Aussie has fallen more than 7 per cent so far in 2018 while its New Zealand cousin has lost over 6 per cent in that time.

The currencies were knocked lower late Thursday on a report US President Donald Trump told aides he is ready to impose tariffs on US$200 billion more in Chinese imports as soon as a public comment period on the plan ends next week.

"Investor focus will remain on the global trade issue as we move into the weekend," said Nick Twidale, Sydney-based analyst at Rakuten Securities.

"President Trump's latest announcement is being felt around the world and there's no doubt that China will look to reciprocate with action aimed back at the United States," he added.

"One school of thought is that we'll see even more protectionist rhetoric from the US administration as we move closer to the mid-term elections."

Analysts said emerging market currencies were the most at risk from an escalation in the trade war. The Aussie is seen as a liquid proxy for emerging market growth and has become a favourite whipping boy for traders as tensions simmer.

In Australia, investors will be focussed on a deluge of macroeconomic data due next week including July retail sales on Monday, central bank monthly policy meeting on Tuesday and second quarter gross domestic product (GDP) Wednesday.

The Reserve Bank of Australia (RBA) is widely expected to leave rates at record lows 1.5 per cent awaiting a revival in inflation. Economists expect GDP growth to slow a bit to 0.7 per cent after first-quarter's brisk pace of one per cent.

New Zealand government bonds gained, with yields on the long-end off about 1.5-2 basis points.

Australian government bond futures rose, with the three-year bond contract up 3.5 ticks at 98.005. The 10-year contract added four ticks to 97.470.

REUTERS