The Australian dollar licked its wounds on Friday amid concerns the country's lucrative exports of coal to China were under threat, though policy makers and analysts played down the danger.
The Aussie AUD=D3 huddled at $0.7092 and was down 0.6 percent for the week. It shed 1 percent on Thursday after briefly venturing as high as $0.7207 in the wake of strong local jobs numbers.
The New Zealand dollar NZD=D3 got caught in the cross fire and slipped to $0.6774, having been as high as $0.6877 on Thursday. It was off 1.3 percent for the week so far.
The Aussie came unstuck when Reuters reported the Chinese port of Dalian had banned imports of Australian coal, sparking talk the motive might be political.
Australian Prime Minister Scott Morrison and Reserve Bank of Australia (RBA) Governor Philip Lowe both urged markets not to "jump to conclusions" on the report, noting Chinese ports routinely delayed imports for environmental and competition reasons.
Lowe also said the amount of coal involved was relatively small and that the restriction would not "derail" the Australian economy.
Analysts agreed. Daniel Hynes, a senior commodity strategist at ANZ, said China's actions had been "misconstrued".
"Our channel checks so far suggest while there are delays in getting imported coal, it is still getting through," he said. "This has been confirmed by our own conversations with buyers in China."
He noted spot prices for Australian thermal coal had held firm when normally an actual ban would have sent them sliding.
Coal was Australia's biggest export earner last year at A$66 billion, overtaking iron ore, and China is a major buyer.
Investors had speculated that a hit to those exports could drag on the local economy and add to the case for a cut in interest rates.
The RBA's Lowe, however, showed no inclination to ease anytime soon, saying the outlook for the economy remained "positive". Indeed, his central case was that while a hike in rates was unlikely this year, it might be appropriate in 2020.
Futures
0#YIB: reacted by paring the probability of a hike this year to around 80 percent, from more than 100 percent late on Thursday.Australian government bond futures fell, with the three-year bond contract YTTc1 off 5.5 ticks at 98.350. The 10-year contract YTCc1 dropped 4 ticks to 97.9050.
The kiwi took another hit when the Reserve Bank of New Zealand announced more details of its plans to force banks to raise their capital requirements.
The market has speculated that banks would raise their lending rates in response, a tightening in financial conditions that might eventually have to be offset by rate cut form the RBNZ.
