The Australian and New Zealand dollars got a fillip on Friday as a report of progress in the Sino-US trade dispute buoyed risk sentiment, though both currencies still nursed losses for the week. The blip came after the Wall Street Journal reported US Treasury Secretary Steven Mnuchin had discussed lifting some or all tariffs imposed on Chinese imports to help push negotiations forward.
However, a Treasury spokesman later denied the report, saying no recommendations had been made and a deal was "nowhere near". Even the hint of possible concessions was enough to boost Asian share markets and lift the Aussie to $0.7201 from a low of $0.7146 on Thursday. That left it down 0.2 percent for the week.
The kiwi dollar stood at $0.6762, after getting as far as $0.6786. It was off 1 percent for the week so far, but up from a $0.6728 trough. Bond investors clearly think a rate cut is a possibility given two-year yields of 1.68 percent are below the 1.75 percent cash rate. Australian two-year yields of 1.90 percent remain well above the local cash rate of 1.5 percent, but are still down around 20 basis points in the last three months. Bond futures eased on Friday as risk sentiment improved, with the three-year bond contract off 5 ticks at 98.190. The 10-year contract also fell 5 ticks to 97.6700.
Dealers suspect speculators have been shorting the kiwi on expectations that key inflation data due next week will prove soft enough to fuel speculation of a cut in interest rates. The Reserve Bank of New Zealand last year left the door open to an easing if economic growth or inflation disappointed and its first policy meeting of the year is less than a month away on February 13.