News: Australia, NZ dlrs inch up on better trade tone, RBA holds fire

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    The Australian and New Zealand dollars edged higher on Tuesday amid some signs of progress in the Sino-U.S. trade talks while the Aussie got a small lift as the country's central bank skipped a chance to cut interest rates.

    The Aussie AUD=D3 was last up 0.2% at $0.6903, not far from a recent three month high of $0.6929, having been as low as $0.6877 early in the session.

    The kiwi NZD=D3 was up a fraction at $0.6408, having hit a a 2-1/2 month top of $0.6456 just last week.

    Part of the strength in the antipodean currencies was thanks to growing optimism the United States and China are on the verge of reaching a preliminary agreement to scale back their bruising trade war.

    In recent days, Beijing and Washington have given encouraging signs of progress in trade talks. The U.S. government is considering dropping some tariffs on Chinese goods, the Financial Times reported on Monday.

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

    At home, Australian economic news has been too mixed to alter the outlook for even lower interest rates.

    The Reserve Bank of Australia (RBA) on Tuesday kept its cash rate at 0.75%, as expected, following three cuts since June this year.

    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 20% chance of a cut in December while a 25 basis point move in February is 40% priced in. The RBA board does not meet in January.

    The argument for further stimulus was underlined by figures on Monday showing retail sales fell 0.1% last quarter, confounding expectations for a rise of 0.2%.

    Persistent weakness in consumption is a major reason fourth quarter gross domestic product (GDP) data due next month is expected to show the recent slowdown in economic growth is here to stay.

    Worryingly, the labour market is showing signs of weakness as well, while surveys of consumer and business sentiment have been gloomy.

    The only sector where the impact of the RBA's three rate cuts have so far been felt is housing, where revived demand has driven prices up by the most since 2015.

    "We expect the (RBA) to cut rates to 0.25% and launch quantitative easing in 2020," said Marcel Thieliant, senior economist at Capital Economist.

    Bond markets were relatively quiet with yields edging higher from near historic lows. Australian three-year YTTc1 and 10-year bond futures YTCc1 slipped 4 ticks each to 99.135 and 98.78, respectively.

 
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