Australian, New Zealand dollars exposed to collateral damage from tariff fallout

[SYDNEY] The Australian and New Zealand dollars were left adrift on Wednesday as investors awaited details on US tariffs that could well trigger a global trade war, dragging on economic growth and commodity prices.

Neither country has much direct exposure to the United States – under 4 per cent of Australia’s exports go there – but they are much more dependent on trade in general than the US.

“Australia’s trade with the US is comparatively small overall and we do not see large direct macro impacts,” said NAB economist Michelle Shi. “Instead, we expect impacts to be through more affected trading partners like China.”

“Regardless, the US’ continued focus on tariffs presents risks for escalating retaliation and growing global uncertainty.”

That uncertainty dominated discussions at the Reserve Bank of Australia’s policy meeting this week and is one reason markets are wagering it will cut interest rates further at the next meeting in May.

The Aussie is also often used as a proxy for emerging market currencies and risk assets in general, leaving it vulnerable in periods of volatility.

“Markets will likely look past Australia’s limited direct trade exposure to the US but focus on downward risks faced by regional currencies and the global growth outlook,” wrote analysts at HSBC in a note.

“We are bearish the AUD against the USD and low-yielding safe havens in the near term.”

All of which left the Aussie trading flat at US$0.6278, though it had found support around US$0.6217 during a slide early in the week. The next major target on the downside is US$0.6185, while resistance lies at US$0.6330.

The kiwi dollar was a fraction firmer at US$0.5709, having bounced from a trough of US$0.5646 early in the week. Resistance is up around US$0.5762.

A flight to safety in US Treasuries has also seen Australian bonds underperform in recent weeks.

Australian 10-year yields now trade 18 basis points above Treasuries, having been around 20 basis points below at the start of the year. AFP