By Swati Pandey
SYDNEY/WELLINGTON, Aug 26 (Reuters) - The Australian and New Zealand dollars received more lashings on Monday as a tit-for-tat escalation in the Sino-U.S. trade war led nervous investors to the safety of bonds and the Japanese yen.
Analysts fear the tariff dispute, which has already hurt global export growth and manufacturing activity, could tip the world into recession.
The Australian dollar AUD=D4 , a liquid proxy for risk, was last down 0.5% at $0.6722, falling for a third straight session and within a whisker of a recent decade-low of $0.66775.
The New Zealand dollar NZD=D4 slipped 0.3% to $0.6374, a level not seen since September 2015.
Bond prices were buoyant, with yields on three-year Australian government bonds hitting a record low of 0.617% while those on New Zealand two-year bonds fell to 0.76%. AU3YT=RR NZ2YT=RR
Global financial markets were rattled on Friday when Trump announced a 5% additional duty on $550 billion in targeted Chinese goods, hours after China unveiled retaliatory tariffs on $75 billion worth of U.S. products. was met with fury by U.S. President Donald Trump who tweeted threats of further moves and "ordered" American companies to seek alternatives to China. He also threatened more duties in addition to all actual and planned tariffs this year.
"As it stands, there is simply no light at the end of the tunnel," said David Bassanese, chief economist at Australian ETF manager BetaShares, which has over A$8 billion in assets.
"My sense is China will not relent," he added.
"My concern is that economic conditions may need to get a lot worse before (Trump) crosses that bridge, which...likely means the Fed will be forced to cut rates by at least 50 basis points at its Sept. 17-18 policy meeting."
Federal Reserve Chair Jerome Powell, last week, pledged to "act as appropriate" to keep the U.S. economy healthy, although he stopped short of committing to rapid-fire rate cuts.
Still, futures are pricing in one quarter-point cut in September and more than 110 basis points (bps) of easing by the end of 2020. 0#FF:
Expectations are for policy to remain stimulatory in Australia and New Zealand as well. Financial markets are pricing in 50 basis points of reductions from the Reserve Bank of Australia (RBA) by early next year to an all-time low of 0.5%.
The Reserve Bank of New Zealand (RBNZ) earlier this month stunned markets with a 50 basis point cut to interest rates, taking it to a record trough of 1%. Governor Adrian Orr also floated the possibility of negative rates.
All eyes will be on a joint news conference between Trump and his French counterpart Emmanuel Macron due 1330 GMT Monday, following the conclusion of the G7 summit in France. (Editing by Sam Holmes)