The Australian and New Zealand Dollars plunged late in the session on Friday after the United States and Canada ended their trade talks without a deal. Although there was some upside retracement after the U.S. said talks would resume with Canada next week, traders feel that given the downside momentum throughout the session, the currencies should continue to trade weaker on Monday.

The AUD/USD closed at .7193, down 0.0071 or -0.98% and the NZD/USD settled at .6620, down 0.0039 or -0.58%.

Also driving the Aussie and Kiwi lower was the possibility that new tariffs by the United States against China would be announced as early as next week. Bloomberg News reported on Thursday that President Trump wanted to move ahead on a plan to impose tariffs on Chinese imports worth $US200 billion next week.

Traders also reacted to weakness in the Euro which was fueled by Trump’s comments saying that the European Union’s proposal to eliminate auto tariffs was “not good enough”. Investors were fearful about Europe’s outlook as Trump has threatened to impose tariffs on cars assembled by German auto makers.

There was economic data last week from Australia, New Zealand and the United States, but the primary focus for investors was on trade issues. As far as the economic data is concerned, there were no significant major events to change the central bank or interest rate outlook. The Fed is still hawkish and likely to raise rates at least 2 more times in 2018, and the Reserve Banks of Australia and New Zealand are still dovish.

The widening interest rate differential is what’s driving the long-term downtrends in the AUD/USD and NZD/USD. The trade news is driving the volatility.

Earlier in the week, the trade-positive news about a U.S.-Mexico deal helped boost demand for the higher risk Australian and New Zealand Dollars, but conditions quickly turned trade-negative when these other issues were raised late in the week.

Investors essentially sought shelter in the U.S. Dollar throughout the session because of its safe-have qualities.

This article was originally posted on FX Empire

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