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Australian, New Zealand dollars hug hefty weekly gains despite trade jitters

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The Australian and New Zealand dollars were holding hefty weekly gains on Friday as an upbeat report on Chinese manufacturing helped offset fresh jitters over Sino-US trade talks.

[SYDNEY] The Australian and New Zealand dollars were holding hefty weekly gains on Friday as an upbeat report on Chinese manufacturing helped offset fresh jitters over Sino-US trade talks.

A private business survey out on Friday showed China's factory activity unexpectedly expanded at the fastest pace in well over two years in October as new export orders rose and plants ramped up production.

The Aussie edged back up to US$0.6905, though that was short of Thursday's three-month top at US$0.6929. It was 1.2 per cent higher for the week so far and comfortably above the week's low of US$0.6811. Immediate chart support now rests at US$0.6883.

The New Zealand dollar firmed to US$0.6432 and away from its recent trough at US$0.6335. That left the kiwi with a 1.3 per cent gain for the week so far and testing tough resistance around the October top of US$0.6435.

Both had dipped overnight when Bloomberg reported Chinese officials have doubts about whether it is possible to reach a comprehensive long-term trade deal with Washington and US President Donald Trump.

Mr Trump, however, later said the two sides would soon announce a new site where he and Chinese President Xi Jinping will sign a "Phase One" trade deal.

The uncertainty was enough to see the market price in a slightly greater chance of a future rate cut by the Reserve Bank of Australia (RBA), though a move at its Nov 5 policy meeting is considered highly unlikely.

A December rate cut is also put at a modest 24 per cent probability, rising to 48 per cent by February.

Data out on Friday showed past easings were working to reignite the housing market, with prices jumping in October by the most since mid-2015.

Prices across the capital cities rose 1.4 per cent in the month, led by a 2.3 per cent surge in Melbourne - the best performance since 2009 - and a 1.7 per cent jump in Sydney.

"However, so far, there are limited signs that it has boosted consumer spending," said Paul Bloxham, HSBC's chief economist for Australia.

"Looking ahead, the key factor is the jobs market," he added. "Our central case is that the unemployment rate may edge a little higher yet, and with this in mind, we expect the central bank to cut again to 0.50 per cent, in Q1 2020."

The concerns over trade were enough to lift three-year Australian bond futures 2 ticks to 99.215, and off the week's low of 99.225. The 10-year contract firmed 3 ticks to 98.8900.

REUTERS

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