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Australia, NZ dollars wallow near recent lows on trade tensions

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The Australian dollar hovered near four-month lows while its New Zealand cousin struggled to recover from an almost two-week trough on nervousness around the outlook for global growth amid escalating US -China trade tensions.

[SYDNEY] The Australian dollar hovered near four-month lows while its New Zealand cousin struggled to recover from an almost two-week trough on nervousness around the outlook for global growth amid escalating US -China trade tensions.

The Australian dollar was a tad firmer at US$0.77 to be within spitting distance of last week's US$0.76, a level not seen since mid-December.

The New Zealand dollar crept 0.1 per cent higher to US$0.7224, not far from Thursday's low of US$0.7189.

Investors were generally on the backfoot as China imposed extra tariffs on 128 US products, deepening a dispute between the world's two biggest economies and stoking concerns about the impact on global growth.

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At home, Australia had a string of secondary data which showed the economy was expanding at a reasonable pace, with strong hiring and signs of a pick-up in price pressures.

The Reserve Bank of Australia (RBA) also sounded optimistic about faster economic growth in 2018 at its monthly policy meeting on Tuesday in which it held rates at 1.50 per cent in a widely expected move.

The RBA has left rates at record lows since August 2016, the longest stretch without a change since early 1990s, and is likely to extend the spell for some time yet as it awaits a pick-up in inflation.

"We believe that Australia's economic recovery still has a long way to run," said Callam Pickering, Apac economist for global job site Indeed.

"The relatively soft outlook for inflation and the unemployment rate from the RBA suggests that, at least for now, they tend to agree."

Core inflation has remained below the central bank's target band of 2-3 per cent for more than two years now while unemployment has stayed around 5.5 per cent despite booming job creation over the past year.

In New Zealand, investors will focus on a closely watched auction for dairy prices scheduled for the early hours of Wednesday.

"Volatility looks set to be on the cards, though US$0.72 should continue to serve as an anchor point for the Kiwi," said Kiwibank economists in a research note.

New Zealand government bonds gained, sending yields 0.5 basis point lower at the long end of the curve.

Australian government bond futures were mixed, with the three-year bond contract off 1.5 ticks at 97.850. The 10-year contract rose 1.5 ticks to 97.40.

REUTERS