SYDNEY: The Australian and New Zealand dollars edged higher on Monday as signs of movement in the US-China trade deadlock supported risk sentiment globally, though investors awaited more detail before getting too excited.
A statement from the two sides is expected later on Monday, and markets are hoping President Donald Trump can be convinced to lower his punishing 145% tariffs on China and help limit the damage done to both economies.
China is Australia’s biggest export market and an economic downturn there could weigh on the demand for, and price of, Australia’s resources.
The lack of specifics kept the reaction cautious and the Aussie nudged up 0.2% to $0.6424, and away from Friday’s low of $0.6371.
It remains well short of the recent five-month top of $0.6515, which now marks major resistance. The kiwi dollar also bounced 0.3% to $0.5925, having been as low as $0.5869 on Friday.
Again, it is some way from the recent high at $0.6023.
Markets took the apparent easing of trade tensions as reducing the need for aggressive rate cuts at home, and now implies an Australian rate of 3.10% by year end compared to nearer 2.85% a couple of weeks ago.
A quarter-point cut in the current 4.10% rate is still fully expected when the Reserve Bank of Australia meets next week, but a larger move is considered much less likely. Data on wages and employment due this week would have to be far weaker than forecast to change that outlook.
Australia, New Zealand currencies set for weekly loss as dollar makes comeback
Annual wage growth is seen holding at a modest 3.2% in the first quarter, while analysts are looking for a rise of 25,000 in jobs with unemployment staying at 4.1%.
New Zealand has already reported soft labour conditions for the first quarter, leaving markets wagering on a further cut of 25 basis points when the Reserve Bank of New Zealand meets on May 28.
The current 3.5% cash rate is seen reaching 2.75% by the end of the year.
“Demand for labour has clearly softened, and wage inflation is quickly cooling,” said Jarrod Kerr, chief economist at Kiwibank.
“We should have stimulatory monetary policy, not the current restrictive setting,” he argued.
“We expect another 100bps of rate cuts to 2.5%, and the uncertainty surrounding Trump’s tariffs demands caution as well.”
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