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| 11 July, 2018

Australia, New Zealand dollars hit as Trump raises stakes in trade war

The Australian and New Zealand dollars were dealt a blow on Wednesday after the United States threatened to slap further import duties on Chinese goods

Australian dollars are seen in an illustration photo February 8, 2018.

Australian dollars are seen in an illustration photo February 8, 2018.

Reuters/Daniel Munoz

SYDNEY   - The Australian and New Zealand dollars were dealt a blow on Wednesday after the United States threatened to slap further import duties on Chinese goods, fuelling fears of a full-blown trade war.

Washington decided to impose tariffs on an extra $200 billion worth of imports from China after efforts to negotiate a solution to the dispute failed to reach an agreement, senior administration officials said on Tuesday.

The news rattled Asian markets and knocked the Australian dollar off a 3-1/2 week top to as low as $0.7407. It was last down 0.5 percent at $0.7423.

The New Zealand dollar fell 0.3 percent to $0.6815, retreating from a high of $0.6857 touched on Tuesday.

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China is Australia's single biggest export market and easily the largest buyer of its commodities, so any development that risks a slowdown in China is seen as negative for the Aussie.

The currency is also used by investors as a liquid proxy for wagering China risks, global growth and resource prices in general.

The Aussie has fallen almost 1 percent since early June when worries of a trade war began surfacing after a Group of Seven summit in Canada laid bare a deep rift on trade between U.S. President Donald Trump and other leaders.

Wednesday's additional tariffs came as a surprise to many analysts who had suspected Trump's threats were a negotiating tactic.

"Fears are now strongly held this escalation will be met with a Chinese response and possibly counter-response from the United States," Greg McKenna, Sydney-based chief strategist at AxiTrader, said in a note.

"That puts the AUD/USD as an available and liquid proxy for all the worst fears about the impact of the trade war. A break of $0.7393 could open the floodgates to re-test lows."

New Zealand government bonds  rose on a general safe-haven bid, sending yields about 2.5 basis points lower at the long-end and half basis point at the short-end.

Australian government bond futures gained, with the three-year bond contract up 2.5 ticks at 97.930. The 10-year contract added 2 ticks to 97.380.

(Editing by Shri Navaratnam)

© Reuters News 2018