SYDNEY: The Australian and New Zealand dollars were battling to avoid a fifth straight session of losses on Friday as the looming threat of US tariffs on Mexico and Canada undermined currencies with a high exposure to trade.
President Donald Trump reiterated on Thursday tariffs of 25% would be imposed from Saturday onwards, yet it was still unclear whether they would actually go ahead.
Trump also mentioned slapping tariffs on China, though again with no details. Any such action was likely to prompt retaliatory taxes on US goods and endanger decades of free trade standards globally.
Australia is heavily reliant on resource exports, particularly to China, and its liquid currency has become a favourite tool for investors to hedge global trade risks.
Thus, while the Aussie had steadied for the moment at $0.6217, it was still down a hefty 1.4% for the week so far.
That was a marked reversal from last week’s top of $0.6330 and targets supports at $0.6163 and $0.6133. The kiwi dollar held at $0.5642, having slid 1.2% for the week and away from a high of $0.5723.
Support now lies at $0.5561 and $0.5539.
Australia, NZ dollars remain hostage to rate and tariff risks
The Aussie has also been pressured by a surprisingly soft domestic inflation report that fuelled expectations the Reserve Bank of Australia will cut its 4.35% cash rate by a quarter point when it meets on Feb. 18.
Markets are pricing in a 95% chance of a cut and all four of Australia’s major banks are now tipping a February move.
The Reserve Bank of New Zealand is considered likely to cut its 4.25% cash rate by 50 basis points when it meets in February, particularly so if jobs figures due next week are as weak as analysts expect.
“The protracted economic slowdown looks to have caught up with the labour market, and the Q4 unemployment rate is set to hit 5.1%, its highest level in four years,” wrote analysts at ASB in a note.
“With inflation close to the target midpoint and monetary settings still slowing the economy, further swift monetary easing looks appropriate.”
They expect a half-point cut on Feb. 19 and rates to reach 3.25% by the middle of the year, which is roughly where the market is.
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