The Australian and New Zealand dollars were precariously poised on Thursday as markets counted down to the threatened launch of U.S tariffs on China, and the risks that might hold to trade and growth worldwide.
The kiwi dollar NZD=D3 hovered at $0.6768, having touched its lowest since May 2016 at $0.6688 earlier in the week.
The Aussie dollar AUD=D3 was looking shaky at $0.7379, after failing to sustain a bounce to $0.7424 overnight. The pace of the pullback suggested speculators were keen to test the recent 18-month trough around $0.7311.
"We still believe that $0.7400 represents 'fair value' and we note that investors already appear somewhat short in AUD," said Nomura economist Andrew Ticehurst.
"However, the currency continues to be used as a China and global risk proxy and a further deterioration in sentiment could see AUD, and AUD/JPY in particular, trade lower."
Investors are on tenterhooks ahead of the July 6 deadline when the U.S. administration is due to slap tariffs on $34 billion worth of Chinese goods.
China is Australia's single biggest export market and the world's largest buyer of commodities, making the Australian economy particularly sensitive to developments there.
Reserve Bank of Australia (RBA) Governor Philip Lowe recently singled out President Donald Trump's protectionism as the single greatest threat to the global outlook.
Domestically, policymakers are also concerned about weakness in home prices and the impact it might have on household wealth, the RBA's head of economics said on Thursday.
Alex Heath noted recent economic data had been positive and the bank was more confident about the outlook for investment outside the mining sector.
But she noted housing construction was no longer adding to growth and the downturn in house price bore close watching.
All of which is why markets have pushed out any chance of a hike in RBA rates until far into 2019 and pulled down bond yields to multi-month lows.
Yields on Australian 10-year paper AU10YT=RR have fallen 34 basis points since mid-May to stand at 2.60 percent.
The three-year bond futures contract YTTc1 was up half a tick at 97.940, having hit its highest since December earlier in the week, while the 10-year contract YTCc1 eased 1 tick to 97.3950. New Zealand government bonds
0#NZTSY= were mostly steady.
