The Australian and New Zealand dollars gained a respite from recent selling pressure on Wednesday, as Beijing's efforts to stabilise its currency soothed sentiment just enough to spark profit-taking on U.S. dollar positions.
The Aussie dollar AUD=D3 got an added lift from solid data on domestic retail sales and crawled up to $0.7403, moving away from an 18-month trough around $0.7311.
The kiwi dollar NZD=D3 reached $0.6766, having touched its lowest since May 2016 at $0.6688 earlier in the week.
Dealers cautioned that some of the bounce was simply due to a lack of liquidity with the United States on holiday and the selling could easily resume on Thursday.
Much depended on the course of the Chinese yuan which managed to eke out gains after the country's central bank assured markets it would keep the currency stable amid heightened trade tensions.
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.
Beijing has said it would retaliate with tariffs on U.S. products, an escalation that could endanger economic growth more broadly.
Global tensions are ratcheting higher by the day, fuelled by the foolish policies of foolish leaders," warned Saxo Bank's chief economist Steen Jakobsen in a quarterly outlook.
"Tit-for-tat trade wars and agendas that pander only to self-interest are jeopardising the global economy."
Australia's exports account for fully 22 percent of annual economic output, making it very vulnerable to a global trade conflict. Data on Wednesday showed exports rose a healthy 4 percent in May, led by iron ore, coal and liquefied natural gas.
Local retailers also did a bit better with sales rising 0.4 percent in May, after an upwardly revised 0.5 percent gain in April. While growth is still modest by past standards, it does point to a pick up in consumption for the second quarter.
Developments in New Zealand were less favourable as the latest global auction for dairy saw prices fall at the fastest pace so far this year. Dairy is the country's single biggest goods export.
In fixed-income markets, Australian bond futures were near multi-month peaks amid the general mood of risk aversion. The three-year bond contract YTTc1 added half a tick to 97.935, while the 10-year contract YTCc1 firmed 3 ticks to 97.4050.
New Zealand government bond yields were down around 2 basis points across the curve
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