By Swati Pandey
SYDNEY/WELLINGTON, Aug 6 (Reuters) - The Australian dollar snapped a 12-day losing streak on Tuesday after the country posted its biggest trade surplus ever and the central bank paused policy easing after two back-to-back cuts.
The Australian dollar AUD=D4 was 0.6% higher at $0.6798, after hitting a seven-month trough of $0.6748 on Monday.
The currency has been whipsawed in recent weeks as expectations build that domestic interest rates will be kept lower for longer, and as the United States and China escalate their trade war. Shifting views on the odds of more U.S. rate cuts have added to the uncertainty.
U.S. President Donald Trump abruptly decided on Thursday to slap 10% tariffs on $300 billion in Chinese imports, stunning markets and ending a month-long trade truce.
In response, Beijing allowed its yuan to hit record lows in offshore markets, a move which threatens an outbreak of competitive currency depreciations worldwide and led Washington to take the drastic step of branding China a currency manipulator. Aussie, which is often played as a liquid proxy for emerging market risks, fell 1.6% last week.
But Tuesday's data showing Australia's trade surplus surged to A$8 billion $5.44 billion) in June was seen as a rare bright spot and an argument for steady monetary policy at least in the near-term. the Reserve Bank of Australia (RBA) noted the "brighter outlook for the resources sector" in its optimistic assessment of the country's economy as it held the cash rate at a record low of 1% in a widely expected move on Tuesday. so, sluggish household consumption, lukewarm inflation, snail-paced wage growth and still high labour market spare capacity will likely force the RBA's hands again.
"We continue to expect the RBA to cut again in November, but we certainly can't rule out the chance of an earlier cut," said Ned Rumpeltin, London-based European head of forex strategy for TD Securities.
Rumpeltin said the recent steep sell-off in the Aussie means there was scope for some buying to emerge.
"We would not be surprised to see a squeeze back to test 0.6832," he added.
Concerns about trade war and expectations of policy easing globally has sent bonds rallying with yields on three-year AU3YT=RR and 10-year Australian government bonds AU10YT=RR at record lows of 0.710% and 1.047% respectively.
Across the Tasman Sea, the New Zealand dollar NZD=D4 inched up to $0.6550 as investors dialled back aggressive expectations of policy easing after stronger-than-expected jobs report.
New Zealand's unemployment rate fell to an 11-year low of 3.9% in the June quarter, handily beating expectations for 4.3%. are awaiting a Reserve Bank of New Zealand policy decision on Wednesday. It is seen likely to reduce its benchmark rate to an all-time low of 1.25.
Many economists had expected a follow-on cut in September but market pricing suggests policymakers will pause. NZDOIS=
"This strong labour market report reduces the odds of a September cut," said Westpac Senior Economist Michael Gordon. ($1 = 1.4715 Australian dollars) (Editing by Kim Coghill)