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NZ dollar slips on trade deficit, A$ steady ahead of Powell's debut

[SYDNEY] The New Zealand dollar inched lower on Tuesday after the country recorded its biggest monthly trade deficit in more than 10 years, while the Australian dollar was a tad firmer ahead of the first House testimony by the new head of the Federal Reserve.

The New Zealand dollar slipped 0.2 per cent to US$0.7291 after the country posted a deficit of NZ$566 million in January.

"The monthly trade figures are not typically a big market mover, but the surprise was unusually large this time," said Michael Gordon, senior economist at Westpac.

"The pullback in exports for the month was unsurprising, although larger than we had assumed. However, imports have remained surprisingly strong in recent months."

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To be sure, the monthly series is highly volatile, and compares with a surplus of NZ$596 million the previous month, which was the largest ever for any December.

Across the Tasman Sea, the Australian dollar was up 0.1 per cent at US$0.7858.

The Aussie had rallied since end-2017 to reach a more than 2-1/2-year peak of US$0.8136 last month. However, it failed to sustain at those levels and soon stumbled to US$0.7759, the lowest since December.

Investors now await Fed Chairman Jerome Powell's testimony on the central bank's semi-annual report on monetary policy and the economy later in the day.

"If 'gradual' removal of accommodation remains the mantra, risk sentiment is likely to be supported," ANZ analysts wrote in a note to clients.

The Fed had caused a so called "taper tantrum" in May 2013 when it signalled it was time to stop pumping cash into the US economy, a move that created havoc in financial markets particularly Asia.

It raised rates three times in 2017 and is widely expected to do the same again this year as early as March.

"What's going to be interesting tonight as Mr Powell is quizzed by lawmakers is how he frames the outlook for the US economy,"said Greg McKenna, chief market strategist at AxiTrader.

"My sense is he'll play a straight bat. Or at least try to. But that it will be hard for him not to sound hawkish." This week is crammed with US economic data on consumer confidence, revised fourth-quarter growth, manufacturing and personal income and spending.

New Zealand government bonds were unchanged.