Australia, NZ dollars see out tough year, more risk ahead

By Wayne Cole

SYDNEY, Dec 31 (Reuters) - The Australian and New Zealand dollars flatlined on Tuesday after a tough few months are seeing them end the year with heavy losses, and the risk of more next year, depending on U.S. tariff policies.

The Aussie huddled at $0.6215 AUD=D3, having shed 8.8% this year. It had been as high as $0.6943 as recently as September but a broad surge in the U.S. dollar dragged it all the way down to a two-year trough of $0.6199.

The kiwi dollar was stuck at $0.5637 NZD=D3, for a loss of almost 11% for the year. It had been up at $0.6379 in September, only to crumble as low as $0.5608 earlier this month.

Solid U.S. economic data have seen markets sharply scale back expectations for Federal Reserve rate cuts next year, lifting Treasury yields in the U.S. dollar's favour.

At the same time, weak data in Australia, and an outright recession in New Zealand, led investors to price in more domestic policy easing.

Markets imply around a 45% chance the Reserve Bank of Australia (RBA) will cut its 4.35% cash rate in February, and is fully priced for a quarter-point move in April. 0#AUDIRPR

Rates are seen around 3.60% by the end of 2025, compared to 3.85% for the Fed.

Investors are wagering the Reserve Bank of New Zealand will chop its 4.25% cash rate by an outsized 50 basis points in February, and take rates to 3.00% by year end. 0#NZDIRPR

The Antipodean currencies have also been sold as a liquid proxy for China risk given its sluggish economy and the threat of extensive U.S. tariffs next year.

Uncertainty about the exact extent of tariffs and how China responds looks likely to be a burden for some time to come.

"Approximately 60% of U.S. imports from China are already subject to tariffs, averaging around 17%," said Tony Sycamore, a market analyst at IG.

"The market consensus is that Trump's tariffs on China may rise to around 40%," he added. "If the actual tariffs are lower than this, it should provide some relief for the AUD/USD, and vice versa."

(Reporting by Wayne Cole; Editing by Lincoln Feast.)

((Wayne.Cole@thomsonreuters.com; 612 9171 7144; Reuters Messaging: wayne.cole.thomsonreuters.com@reuters.net))