Australia, NZ dollars slip on risk aversion; eyes on Fed meeting

Australia, NZ dollars slip on risk aversion; eyes on Fed meeting

© Reuters.  Australia, NZ dollars slip on risk aversion; eyes on Fed meeting© Reuters. Australia, NZ dollars slip on risk aversion; eyes on Fed meeting

By Swati Pandey

SYDNEY, March 20 (Reuters) – The Australian dollar hovered near three-month lows on Tuesday, undermined by acute risk aversion ahead of a much-anticipated U.S. Federal Reserve policy meeting.

The Australian dollar was also hit by weaker prices for iron ore DCIOcv1 , the country’s top export earner, as fears of a global trade war swirled through commodity markets. AUD=D4 was last down 0.1 percent at $0.7707 and within spitting distance of Monday’s $0.7687, which was the lowest since late December.

The New Zealand dollar edged down 0.2 percent to $0.7226 from Monday’s trough of $0.7197, a level not seen since early March.

The sell-off in the antipodean currencies accelerated last Thursday on concerns U.S. tariffs on imported steel and aluminium would jeopardise world growth, which had seen its first synchronised upturn in years.

That hurt demand for iron ore, the key ingredient in making steel, sending the most-traded iron ore contract for May delivery DCIOcv1 on China’s Dalian Commodity Exchange to its weakest since early November.

U.S. President Donald Trump is expected to unveil up to $60 billion in new tariffs on Chinese products by Friday, targeting technology, telecommunications and intellectual property, two officials briefed on the matter said on Monday. Japanese yen and the Swiss francs are bought as safe haven currencies at the expense of the Australian and New Zealand dollars,” said Tony Boyadjian, forex senior vice president at Compass Markets.

“Global growth concerns have seen commodity currencies weaken. Risk trade has been unwound due to protectionist policies,” he said, referring to the import duties.

Investors will now turn their attention to the March 20-21 Fed meeting, where it is all but certain to raise rates.

Analysts are divided on whether there will be a shift in the “dot plots”, or the Fed’s trajectory for future rate rises, which so far indicates three hikes in 2018.

“The risk is that the Fed is even more hawkish than what is currently expected,” said Tapas Strickland, economist at National Australia Bank. “It will take a lifting of the longer-run dot plots to elicit a significant reaction in the rates market.”

So far though, the dollar has not really responded to Fed rate hikes, ending 2017 down about 10 percent against a basket of currencies even after rates went up three times.

The Reserve Bank of Australia (RBA) released the minutes of its March policy meeting where it repeated its cautious views on consumer spending, affirming the need for interest rates to remain at record lows for longer. Zealand government bonds 0#NZTSY= were barely changed.

Australian government bond futures were mixed, with the three-year bond contract YTTc1 down 1 tick at 97.865. The 10-year contract YTCc1 inched up 1 tick to 97.29.

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