Trade war hits the dollar

Aussie and NZ currency at mercy of Sino-US conflict

THE Australian and New Zealand dollars have been thrown on the defensive as their triple exposure to Asia, exports and commodities left them hostage to the fallout from a Sino-US trade conflict.

The Aussie dollar was stuck at US73.74¢ yesterday, having shed 1.2 per cent overnight as its US counterpart jumped across the board. The retreat from resistance at US74.80¢ ruined what had been a promising rally and turned technicals bearish again.

“That loss comes as traders access the Aussie dollar’s deep pool of liquidity to express their worst fears about the impact on the Australian economy but, possibly more so, their worries about global growth as trade tensions escalate to dangerous levels,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.

“The break of $US0.7393 leaves the Aussie open to a fall to recent lows around $US0.7305/10. Should that break then $US0.7170/7200 becomes the target zone.”

Australia’s economic fate is entwined with China, given the Asian giant is its single largest export market and the world’s biggest buyer of commodities. So President Donald Trump’s plans for tariffs on $US200 billion of Chinese imports are a threat to both.

“While the trade measures implemented to date are too small to knock the global economy off track, the concern is that we are at the start of a cycle where retaliation leads to further retaliation and other countries start raising their tariffs to protect their industries from the fallout,” said Tony Kelly, a senior economist at NAB.

Commodity markets were certainly spooked with oil and base metals diving overnight.

Copper hit its lowest in a year and many consider the industrial metal to be a leading indicator of global economic activity.

All of which was negative for New Zealand, another open economy that relies heavily on resource exports to Asia and tourism from China. The kiwi crumbled to US67.50¢, while its 1.2 per cent loss on Wednesday ranked as the sharpest daily decline since February.

“AUD and NZD demonstrated they are typically the most sensitive G10 currencies to global trade news,” said Westpac strategist Imre Speizer, in a research note.