Australia, NZ dlrs hold ground in the face of trade headwinds

By Wayne Cole and Charlotte Greenfield

SYDNEY/WELLINGTON, April 6 (Reuters) – The Australian and New Zealand dollars proved surprisingly resilient on Friday after President Donald Trump doubled down on his tariff tit-for-tat with China, sandbagging U.S. stocks and risk assets in general.

Trump said late Thursday he had instructed U.S. trade officials to consider $100 billion in additional tariffs on China, fuelling an already heated trade dispute between the world’s two biggest economies. dollar AUD=D4 fell as much as 30 ticks to $0.7658 immediately after the news, but found solid support around $0.7650 as it has done for more than a week now.

As the session wore on, the Aussie clawed back up to $0.7687 as the market awaited a response from China, though the country is on holiday on Friday.

“Traders will be nervous about hammering too hard in Asia and then getting reversed in the U.S. session when someone in the Administration makes a comment to try to temper the reaction to the President’s comments,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.

Yet he also cautioned that the Aussie remained very vulnerable given it was a liquid proxy for global growth.

“If this does escalate, as the President’s new initiative suggests it might, then all heck can break loose as traders and investors seek to de-risk their portfolios,” he added.

There was some talk the Aussie might be benefiting from M&A flows related to Unibail-Rodamco’s proposed $16 billion buy-out of shopping mall giant Westfield Corp .

The deal won Australian regulatory approval last week and is set to finalise on June 7.

The price response was much the same from the kiwi dollar , which initially dipped to $0.7256 before steadying at $0.7266. That left it with a gain for the week of 0.2 percent.

The currency had spent the week bouncing around within a relatively tight range, as global risk sentiment waxed and waned on headlines over the trade dispute between the U.S. and China.

The next major test for both currencies will be U.S. payrolls data for March due later Friday. Key will likely be wages since a high number would rekindle talk of faster U.S. rate hikes and further erode risk sentiment.

New Zealand government bonds 0#NZTSY= eased, sending yields 1 basis point higher at the long end of the curve.

Australian government bond futures edged up a tick as sovereign bonds benefited from the latest trade rumblings. The three-year bond contract YTTc1 added 1 tick to 97.830, while the 10-year contract YTCc1 rose half a tick to 97.3250. (Editing by Shri Navaratnam)

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