The Australian dollar slipped on Tuesday, shrugging off a risk rally elsewhere, on worries over deteriorating relations with top trading partner China while the New Zealand dollar struggled for traction.
The Australian dollar <AUD=D4> was last off 0.5% at $0.7176, on track for its second straight session of losses despite optimism of a large U.S. fiscal stimulus after U.S. elections on Nov.3.
Sentiment was hit when S&P Global Platts reported citing several sources that state-owned utilities and steel mills in China have received verbal notice from customs to stop importing Australian thermal and coking coal with immediate effect.
Although there was no clear timeline for the Australian coal ban, sources told Platts imports of Australian coal would remain difficult until the political tensions between the two governments are resolved.
Australian trade minister on Tuesday played down signs of escalating trade tensions, saying the government was investigating the media reports.
"Despite the positive risk sentiment, the A$ appears to have been well contained by further indications that Chinese imports of metallurgical and thermal coal have been banned joining wheat, beef and wine to varying degrees," said Westpac currency strategist Robert Rennie.
"This is important given that 22% of Australian thermal coal exports went to China in the last year and 28% of metallurgical coal. Prices have dropped sharply with the second Queensland met coal swap down $20 over the last week," Rennie added.
Westpac sees the possibility of the Aussie dipping below $0.70 through end-October or early November, with key chart resistance seen at $0.7260 and support around $0.7124.
Later in the week, analysts will keep a close eye on a speech by the Reserve Bank of Australia (RBA) Governor Philip Lowe speech on Thursday ahead of official employment data.
A number of risk factors, including the Australia/China trade, U.S. fiscal support package, uncertainty around U.S. election, coronavirus lockdown in the United Kingdom and Europe should cap gains, analysts said.
The New Zealand dollar <NZD=D4> was last at $0.6644 after falling 0.36% on Monday.
The antipodean currencies eased on Monday as China moved to facilitate shorts on the yuan to tame its rise. [AUD/]
New Zealand government bonds <0#NZTSY=> were little moved.
Australian government bond futures were barely changed too, with the three-year bond contract <YTTc1> flat at 99.82. The 10-year contract <YTCc1> rose half a tick to 99.155.
(Editing by Shri Navaratnam)
