Australian dollar rebounds

The Australian dollar has risen Friday, buying 69.90 US cents from 69.78 US cents on Thursday.

Yesterday, the local currency was under pressure as US President Donald Trump keeps up his war of words with China over trade, even with talks between to two protagonists set to resume.

Markets had calmed a little overnight but were jolted anew in Asia on Thursday when Trump told a rally of supporters that China had “broke the deal” and would be paying for it.

Trump has threatened to impose additional tariffs on Chinese goods beginning on Friday, while Beijing announced it would retaliate if tariffs rise.

The Aussie dollar slipped 0.1 per cent to 69.71 US cents on Trump’s latest outburst, leaving it just a whisker above the recent four-month trough of 69.60 US cents.

China is Australia’s single largest export market so anything that might dim the outlook for Chinese trade is taken as a negative for the Aussie.

On the other hand, Australia’s exports to China have shown little sign of suffering in past months.

In March, exports were up 21 per cent on the same time last year helped by high prices for iron ore.

Some analysts also assumed Beijing would be able to deal with the drag on trade.

“If the US government applies a blanket 25 per cent tariff rate on all of Chinese exports to the US, we estimate the direct economic hit to Chinese GDP would be around 0.4 per cent,” said Joseph Capurso, a senior currency strategist at CBA.

“A hit of this magnitude can be easily offset with fiscal and/or monetary policy easing,” he added.

“We do not expect a material impact on the Chinese, US or Australian economies.”

In the bond market, prices were supported by the general mood of risk aversion. Australian three-year bond futures firmed one tick to 98.740, while the 10-year contract rose 1.5 ticks to 98.2700.

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