Australia, NZ dlrs worn down by trade, US rate risks

By Wayne Cole

SYDNEY, March 21 (Reuters) – The Australian and New Zealand dollars were on the defensive on Wednesday as the risk of both a global trade war and faster rate hikes in the United States sapped demand for riskier currencies.

The dollar AUD=D4 was hovering at $0.7697, having struck a three-month trough at $0.7679 overnight in a clean break of support around $0.7713.

Bears are now eyeing a major trendline that stretches all the way back to early 2016 when the Aussie was down near $0.6800. That line currently rests in the $0.7590/7610 region and a break there would be deeply bearish from a technical viewpoint.

The kiwi dollar hit its lowest since early January at $0.7170, after breaching major support around $0.7176/86.

Sentiment was undermined in part by reports President Donald Trump would announce import tariffs on $60 billion of Chinese goods and services as early as Friday. and New Zealand rely heavily on trade, particularly of commodities, and share China as one of their biggest export markets.

Also weighing was the likelihood that the Federal Reserve would raise U.S. interest rates later on Wednesday, taking them above those in Australia for the first time since 2000.

Richard Grace, chief currency strategist at CBA, noted that the U.S. dollar had so far failed to gain much traction from Fed tightening.

“We remind readers that every single FOMC rate hike this cycle has been a “dovish hike” and the USD has declined on the day(s) post the rise,” he wrote in a note to clients.

However, there was a risk that this time the Fed could take a more hawkish turn by predicting four hikes this year, instead of three, and by lifting forecasts for economic growth and inflation.

“Any lift in the inflation projections will surely generate an outsized intra-day lift in the USD,” Grace cautioned.

The risk of a hawkish outcome also pressured Australian government bond futures, with the three-year bond contract YTTc1 off 3.5 ticks at 97.825, near its lowest in four weeks. The 10-year contract YTCc1 eased 1.5 ticks to 97.2700.

New Zealand government bonds 0#NZTSY= likewise lost ground, with long-term yields up as much as 3 basis points. (Simon Cameron-Moore)

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