The Australian and New Zealand dollars ran into turbulence on Wednesday as renewed concerns about the risk of a global trade war spooked investors, while a soft reading on Australian economic growth added insult to injury. The Aussie dollar lapsed 0.4 percent to $0.7795, having been as high as $0.7842 at one stage overnight. Its kiwi cousin fared better to hold at $0.7295, after reaching a top of $0.7311.
Both currencies had bounced on Tuesday when South Korea said it would hold its first summit with the North in more than a decade, reducing geopolitical tensions. Yet they ran into selling in early Asian hours after a key advocate for free trade in the White House resigned, fanning fears President Donald Trump would go ahead with tariffs and risk a trade war.
Australian government bond futures firmed on the data, with the three-year bond contract up 3.5 ticks at 97.915. The 10-year contract added 2.5 ticks to 97.2200. The New Zealand dollar was untroubled by major economic data and managed to hold most of its overnight rally.
Australia is an open economy that relies heavily on commodity exports and stands to be a major loser in such a war. Reserve Bank of Australia (RBA) Governor Philip Lowe was moved to call the proposed tariffs "highly regrettable and bad policy", strong words for a typically sober policy maker.
The economy could do without such headwinds as data out Wednesday showed growth had already slowed late last year. Gross domestic product (GDP) rose a tepid 0.4 percent in the December quarter, while the annual pace braked to 2.4 percent from 2.9 percent.
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