Australian, New Zealand dollars hold gains as Sino-US talks advance

[SYDNEY] The Australian and New Zealand dollars consolidated gains on Tuesday as signs of progress in the Sino-US trade dispute were taken as a positive for the Chinese economy and commodity prices.

The Aussie dollar hovered at US$0.7164, having stretched as high as US$0.7184 overnight. Dealers noted there were very large option positions due to expire between US$0.7150 and US$0.7200 which would tend to trap the currency in that range.

The kiwi dollar was firm at US$0.6880 after touching a three-week top of US$0.6902. Major resistance now comes in around US$0.6942, with immediate support at US$0.6864.

US President Donald Trump said on Monday he may soon sign a deal to end a trade war with Chinese President Xi Jinping if their countries can bridge remaining differences, saying negotiators were "very, very close" to a deal.

Markets rallied after Mr Trump said on Sunday he would delay an increase in US tariffs on US$200 billion of Chinese goods.

The trade news combined with expectations of more policy stimulus from Beijing to set off a huge rally in Chinese shares on Monday, with Shanghai blue chips climbing almost 6 per cent.

Commodities also benefited, with copper hitting its highest in nearly eight months. The industrial metal is considered a bellwether for global activity and has acted as a leading indicator for the Aussie in the past.

"Buoyant risk appetite and commodity prices are currently more than offsetting the domestic concerns over a subdued consumer, declining house prices and a cautious Reserve Bank," said Rodrigo Catril, a senior FX strategist at National Australia Bank.

"Our fair value model has continued to tick higher, suggesting a move above US$0.7200 looks reasonable from a fundamental basis."

Earlier this month, the Reserve Bank of Australia (RBA) took a dovish turn on policy, saying economic risks were now more balanced and the next move in interest rates might be a cut rather than a hike.

Futures currently imply around a 74 per cent chance of a quarter-point easing in the 1.5 per cent cash rate by the end of the year.

The outlook for the economy could become clearer over the next week or so with data on fourth-quarter business investment, government spending, the current account and gross domestic product all due.

Australian government bond futures dipped as risk sentiment improved, with the three-year bond contract off 1 tick at 98.330. The 10-year contract fell 2 ticks to 97.8950.

Yields on New Zealand government bonds edged up around 1 basis point across the curve.

REUTERS