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Australian, New Zealand dollars manage muted cheer for Trump's trade truce

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The Australian and New Zealand dollars inched higher on Thursday with the market relieved the first stage of the Sino-US trade deal had been sealed but wary that months more wrangling lay ahead.

[SYDNEY] The Australian and New Zealand dollars inched higher on Thursday with the market relieved the first stage of the Sino-US trade deal had been sealed but wary that months more wrangling lay ahead.

The Aussie edged up 0.1 per cent to US$0.6909 having been as low as US$0.6878 at one stage on Wednesday. Resistance lies around US$0.6920 with support at the 200-day moving average of US$0.6888.

The kiwi dollar firmed to US$0.6631, after bouncing from support at US$0.6586, and now faces resistance at US$0.6655.

The United States and China signed a Phase 1 deal on Wednesday that will roll back some tariffs and boost Chinese purchases of US products, but leaves a number of sore spots unresolved.

Vice President Mike Pence later said discussions had already begun on a Phase 2 agreement, which analysts fear will be even more difficult and drawn out than the first round.

"Fundamentally, this deal does little to alter either the US or Chinese economies, and the key issues in the US-China economic relationship remain unaddressed," said Hannah Anderson, global markets strategist at JPMorgan Asset Management.

"While markets seemed to take this deal as a risk-on signal, we should all be aware that headlines about trade are going to be a constant feature of 2020."

Domestically, Australian data showed new home loans rose a solid 1.8 per cent by value in November as a revival in prices fuelled demand by owner-occupiers and investors.

House prices have been the clearest winner from the Reserve Bank of Australia (RBA) three rate cuts last year with gains in Sydney and Melbourne running at an annualised pace above 20 per cent.

The rest of the economy, however, has struggled with consumers in particular reluctant to spend amid miserly wage growth and high debt levels.

Markets have thus priced in around a 46 per cent chance the RBA will ease again at its next policy meeting on Feb 4, and a 90 per cent probability of a move by May.

Crucial will be the December jobs report due out next week and whether it shows continued employment growth, or a pullback, from November's surprisingly strong 39,900 jump.

Any weakness will ramp up the chance of a near-term cut given the RBA Board highlighted the risks to employment at the last meeting in December.

Yields on three-year bonds are down at 0.758 per cent, dead in line with the 0.75 per cent cash rate but above the all-time low of 0.567 per cent hit in October.

The three-year bond future gained 2.5 ticks on Thursday to 99.230, while the 10-year contract rose 3.5 ticks to 98.8050.

REUTERS