Australia, NZ dollars on defensive, RBA holds line on rates


By Wayne Cole

SYDNEY, Sept 3 (Reuters) - The Australian and New Zealand dollars were under pressure on Tuesday amid doubts Sino-U.S. trade talks would make progress anytime soon, though the Aussie got a lift as the country's central bank skipped a chance to cut interest rates.

The Aussie AUD=D3 was off a fraction at $0.6708, having been as low as $0.6688, not far from the recent decade low of $0.6678. The kiwi NZD=D3 dropped 0.4% to $0.6280, having hit a fresh four-year trough at $0.6270.

Part of the decline was due to strength in the U.S. dollar which was benefiting broadly from safe-haven flows out of the euro and sterling. USD/

The Chinese yuan CNH=D3 also touched an all-time low on the U.S. currency in offshore trade after Bloomberg News reported that Chinese and U.S. officials are struggling to agree a schedule for a round of trade negotiations that had been expected this month.

Both the Aussie and kiwi have shown a strong correlation with the yuan in recent weeks, with investors using them as a liquid proxy for trade risk.

At home, Australian economic data were too mixed to alter the outlook for lower interest rates.

The Reserve Bank of Australia (RBA) ended its September policy meeting by keeping rates at 1% as expected, when investors had seen a small chance of a cut.

Still, the bank reiterated that it would ease again if needed and that rates would stay low for a long time to come.

Futures 0#YIB: imply a 70% chance of a cut to 0.75% in October, and are fully priced by November. A further move to 0.5% is seen by March at the latest.

The need for stimulus was underlined by figures showing retail sales fell 0.1% in July, when analysts had looked for a rise of 0.3%.

Persistent weakness in consumption is a major reason gross domestic product (GDP) data due on Wednesday is expected to show the economy expanded at its slowest annual pace in at least a decade last quarter.

The softness in household spending offset news Australia enjoyed its largest current account surplus on record last quarter at A$5.9 billion ($3.98 billion), boosted by high export prices and strong demand from China.

"A structural improvement in Australia's external position is underway...the previous couple of centuries of persistent current account deficits are coming to an end," said CBA chief economist Michael Blythe.

"A shift to current account surplus offers a degree of protection against the current uncertain economic backdrop and potentially volatile funding markets."

Bond markets were quiet with yields holding near historic lows. Australian three-year bond futures YTTc1 edged up 1 tick to 99.320, with 10-year contract YTCc1 flat at 99.0750.

($1 = 1.4806 Australian dollars)

(Editing by Kim Coghill and Sam Holmes)

((; 612 9321 8162; Reuters Messaging:

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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