SYDNEY (Reuters) - The Australian and New Zealand dollars clung to solid weekly gains on Friday as investors wagered Sino-U.S. trade talks at the G20 meeting would manage to avert a new round of tariffs, even if only temporarily.
Still, there was much uncertainty about what exactly might come from the meeting between U.S. President Donald Trump and Chinese President Xi Jinping this weekend.
Any intensification of the dispute would tend to dampen risk appetite and weigh on both the Aussie and kiwi.
For now, the Aussie was holding at $0.7003, some distance from the recent five-month trough of $0.6832.
That left it heading for its best week since January with a gain of 1.1%. Resistance remains stiff around a former top at $0.7025, with another chart barrier at $0.7069.
The kiwi stood at $0.6692, bringing its gain for the week so far to 1.6%. It has support at $0.6680, with resistance up at $0.6782.
The kiwi got an added lift mid-week when the Reserve Bank of New Zealand (RBNZ) skipped a chance to cut rates, though it did say another easing would likely be needed given risks to growth globally and at home.
Markets imply around a 65% chance of a quarter-point cut when the central bank next meets on Aug. 7, and has priced in a further easing to 1% by mid-2020.
Futures also show a 75% chance the Reserve Bank of Australia (RBA) will cut its rates to 1% at its policy meeting next week, and follow with a move to 0.75% by year end.
Yet they are hardly alone. The market is now aggressively pricing cuts from the Federal Reserve, starting with 25 basis points on July 31 and reaching 100 basis points by the middle of next year.
This is a complete reversal from early this year when the Fed itself was projecting two rate hikes for 2019, and a sea change that has broadly undermined the U.S. dollar.
Rodrigo Catril, a senior FX strategist at NAB, noted history showed the U.S. dollar tended to decline in the month after the Fed begins an easing cycle.
"In today's environment we would expect the market to persist in the view the Fed will be starting to cut rates in July and for the US dollar to continue weakening thereafter, at least initially," he said.
"This likely means the AUD/USD claws its way back above $0.70, but given the prospects of further RBA easing, we expect the pair to range trade around this figure over the coming months."
The outlook for easing globally has been bullish for bonds with yields on Australian three-year paper hitting historic lows at 0.884% this week, well below the 1.25% cash rate. Yields were last at 0.94% and down 16 basis points for the month so far.
The 10-year bond future was up 2.5 ticks on Friday at 98.6750, just off an all-time peak of 98.735.
Yields on New Zealand two-year paper were last at 1.18%, not far off a recent record low of 1.123%.
(Editing by Shri Navaratnam)
