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Australian dollar frets on China outlook as RBA meets

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The Australian dollar treaded water on Tuesday as the country's central bank held a policy meeting against the background of rising Sino-US trade tensions and unease over global growth.

[SYDNEY] The Australian dollar treaded water on Tuesday as the country's central bank held a policy meeting against the background of rising Sino-US trade tensions and unease over global growth.

The Aussie dollar was idling at US$0.7390, sandwiched between support at US$0.7350 and resistance at US$0.7440. Major chart levels at US$0.7311 and US$0.7484 have hemmed-in the currency for more than seven weeks now.

The kiwi dollar held near the floor of its recent range at US$0.6734, not far from support in the US$0.6710/20 zone.

The Reserve Bank of Australia (RBA) holds its monthly policy meeting on Tuesday and is considered certain to keep rates at 1.5 per cent, marking a record two years without a change.

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Attention will be on the RBA's post-meeting statement and any updates to its economic forecasts ahead of a quarterly outlook on monetary policy due on Friday.

Analysts assume it will stick with a prediction of economic growth of 3 per cent, or a bit more, for this year and next but again emphasise that necessary progress on inflation and wages will take time.

Markets long ago priced out any chance of a hike in rates this year and price in only a 50-50 probability of a move by August 2019.

"With the RBA firmly on hold, global factors are more likely to be the catalyst for a break of the US$0.73-0.75 range which has held since early June," said Westpac senior currency strategist Sean Callow.

"In particular, we will be watching to see if the US-China trade war causes further damage to Australia's key commodity prices."

Copper, for instance, has fallen more than 15 per cent since hitting a 4-1/2 year high in June.

Yet China's efforts to cut back on pollution have cut steel supply and raised prices, a boon for high-quality iron ore and coal, Australia's two biggest export earners.

Chinese iron ore futures surged nearly 7 per cent to their strongest level since March on Monday, while prices for coking coal hit the highest in a year.

While sidelined on the US dollar, the Aussie was faring better elsewhere.

The euro was down at A$1.5638 having touched a seven-week low on Monday at A$1.5604 in the wake of shockingly weak data on German factory orders.

Sterling slid to a two-month trough at A$1.7489 amid concerns the UK could crash out of the European Union without first securing a much-needed trade deal.

British trade minister Liam Fox warned over the weekend the that the odds of Britain leaving the EU without a deal stood at 60-40.

Australian government bonds were little changed, with the three-year bond contract up half a tick at 97.875. The 10-year contract was a shade firmer at 97.3250.

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

REUTERS