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James Hyerczyk
New Zealand Dollars

The Australian and New Zealand Dollar lost ground on Monday with the Aussie pushed to its lowest level in 10 years as investors priced in greater expectations of an interest rate cut over growing fears the US-China trade dispute has mushroomed into a full-blown currency war that will hurt the global economy.

On Monday, the AUD/USD settled at .6757, down 0.0043 or -0.64% and the NZD/USD finished at .6530, down 0.0007 or -0.10%.

Sellers dominated the trade yesterday on the notion that Beijing is digging in against Washington and will resist efforts from President Trump to seize control of the trade negotiations and force China into making a bad deal that brings a sudden end to the trade dispute. Chinese officials made two moves on Monday that encouraged sellers to press prices lower.

Firstly, the People’s Bank of China (PBOC) revealed it was devaluing the country’s currency by breaking the 7 yuan to the U.S. Dollar for the first time in a decade.

Although President Trump called it “currency manipulation”, China denied the allegation. In a statement pointed directly at the U.S., an official said the devaluation was “due to the effects of unilateralist and trade-protectionist measures and the expectations for tariffs against China.”

Secondly, Bloomberg News reported almost at the same time on Monday that China’s state-run agricultural companies would be blocked from buying U.S. farm goods in a move that immediately hit key commodity markets like corn, soybeans and wheat.

The events also had an effect on Australia’s key export. Iron ore price fell to $US107 a tonne and have now dropped almost 9 percent over the past week on the back of falling steel prices in China.

Additionally, bond yields were hit all around the globe on expectations the escalation in the trade dispute would further weaken the global economy. Australian 10-year bond yields hit a record low with sign of easing in sight. The U.S. 10-year Treasury yield, which is closely correlated to the Australian note, fell 8 basis points on Monday.

Daily Forecast

Early Tuesday, the focus will shift to the New Zealand Dollar, which found support on Monday at .6488, slightly above the June 14 bottom at .6487, the May 23 bottom at .6481 and the October 16, 2018 main bottom at .6465.

At 22:45 GMT, NZD/USD traders will get the opportunity to react to New Zealand labor market data. The Employment change is expected to have risen 0.3%, up from -0.2%. The Unemployment Rate is expected to have increased to 4.3% from 4.2% and the Labor Cost Index is expected to have risen by 0.7%, up from 0.3%.

We could see a moderate reaction in the market with most traders waiting for a widely expected rate cut by the Reserve Bank of New Zealand later in the week. The RBNZ is expected to trim its benchmark interest rate 25-basis points.

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