Australia, NZ dollars suffer hits from Sino-U.S. spat

Published 13/05/2019, 02:22 pm
© Reuters.  Australia, NZ dollars suffer hits from Sino-U.S. spat
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By Wayne Cole

SYDNEY, May 13 (Reuters) - The Australian and New Zealand dollars lost ground on Monday as the stalemate in Sino-U.S. trade talks clouded the outlook for the Asian giant in its demand for resources.

The Aussie dollar AUD=D3 slipped 0.4% to $0.6975 and ever closer to the recent four-month trough at $0.6960.

The kiwi NZD=D3 eased 0.3% to $0.6581, but remains above the $0.6525 low hit last week when the Reserve Bank of New Zealand cut interest rates to an all-time low.

China is a major buyer of commodities from Australia and New Zealand, so any threat to its trade is considered a potential negative for the currencies. also use the Aussie as a liquid proxy for China plays, in this case shorting it as well as the yuan.

Joseph Capurso, a senior currency strategist at CBA, noted that Washington was due to release a "Section 232" report into the national security implications of car imports this week, which could give President Donald Trump more ammunition in his trade disputes.

"Global stock markets, and global growth-sensitive currencies such as AUD and NZD, may be hit by fears a 'trade war' will spread," Capurso said. "Europe, Japan, Korea and Mexico are major exporters of cars to the U.S."

The Aussie also faces domestic hurdles from data on wages and jobs due this week, where any sign of weakness would fuel wagers on a rate cut by the Reserve Bank of Australia (RBA).

The central bank last week emphasised that further improvement was needed in the labour market to bring unemployment down and lift inflation. figures for the first quarter are due on Wednesday and are forecast to show modest growth of 2.% for the year. The jobs report on Thursday is expected to show 14,000 net new hires in April, with the unemployment rate ticking up to 5.1%.

"Downside surprises will raise pricing for a rate cut as soon as June," added Capurso. "The AUD can drop more than 1 U.S. cent if the labour data disappoints."

The futures market 0#YIB: implies around a 63% chance of a quarter-point cut in July and is almost fully priced for a move in August.

Yields on three-year bonds AU3YT=RR are already well below the 1.5% cash rate at 1.26%, and only just above record lows.

Three-year bond futures YTTc1 were up 1 tick at 98.750, while the 10-year contract YTCc1 rose 1 tick to 98.2700.

Yields on New Zealand government bonds 0#NZTSY= were down 1 to 2 ticks across the curve. (Editing by Richard Borsuk)

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