SYDNEY: The Australian and New Zealand dollars dipped on Tuesday as their US counterpart benefited from a truce in the trade war between Washington and Beijing, yet they fared much better on safe havens as risk sentiment improved.
Local surveys showed Australian business activity stayed subdued in April as profitability weakened and firms shied away from fresh investment due to the tariff uncertainties.
Consumer sentiment recovered partially in May from the tariff blow.
The Aussie slipped 0.1% to $0.6365, having fallen 0.6% overnight to as low as $0.6358.
It faces resistance at the 200-day moving average of $0.6457, while support is around $0.6344.
The kiwi was also 0.1% lower at $0.5851, after dropping 0.9% overnight to as far as $0.5847.
It also breached the 200-day moving average at $0.5882 in a bearish sign that leaves it vulnerable to a decisive break of the $0.5850 level.
The dollar surged after the United States and China reached an agreement to temporarily slash sky-high tariffs on one another, which has lessened the risk of a US recession.
US stocks soared, with the tech-heavy Nasdaq up more than 4%.
True to its risk proxy status, the Aussie rallied against its crosses overnight, especially the safe-haven currencies like the yen and Swiss franc, up 1.5% and 1.1% respectively in the biggest daily rises since April.
“This should alleviate the pressure on the regional growth outlook and improve overall risk sentiment. AUD-USD should benefit over time,” said Lenny Jin, global FX strategist at HSBC. Jin said even though the US dollar may be supported in the near-term by the reduction in trade tensions, the investment bank prefers to “position for the AUD to outperform versus currencies that were key beneficiaries of elevated US policy uncertainty and related risk aversion, e.g. EUR and JPY.”
Australia, NZ dollars make guarded gains on Sino-US trade anticipation
Markets took the easing of trade tensions as reducing the need for aggressive rate cuts at home, and now implies an Australian rate of 3.25% by year-end compared to nearer 2.85% a couple of weeks ago.
A quarter-point cut in the current 4.10% rate is still fully expected when the Reserve Bank of Australia meets next week. Data on wages and employment are due on Wednesday and Thursday.
Annual wage growth is seen holding at a modest 3.2% in the first quarter, while analysts are looking for a rise of 25,000 in jobs with unemployment staying at 4.1%.
Across the Tasman sea, markets are wagering on a further cut of 25 basis points when the Reserve Bank of New Zealand meets on May 28.
The current 3.5% cash rate is seen reaching 2.8% by the end of the year.
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