Australia, NZ dlrs struggle to extend gains amid brewing US trade war

SYDNEY, Feb 5 (Reuters) - The Australian and New Zealand dollars struggled on Wednesday as China markets returned from a week-long holiday with a whimper, with investors waiting to see if China and the U.S. will try to defuse their escalating trade war.

The Aussie slipped 0.1% to $0.6245 AUD=D3, having dived to as low as $0.6168 overnight before rallying back to end the day 0.4% higher. It faces resistance at $0.6262, while support is at the five-year low of $0.6088 hit on Monday.

The kiwi was flat at $0.5654 NZD=D3, falling to as low as $0.5580 overnight before reversing the losses and ending 0.4% higher. Resistance is at last Friday's high of $0.5683.

The two have had a few wild sessions after U.S. President Donald Trump imposed tariffs on its top trading partners, although those on Mexico and Canada have been delayed. China responded on Tuesday with new tariffs on U.S. goods, but investors reckoned it was a more measured response. MKTS/GLOB

Trump kept everyone guessing by saying he was in no hurry to talk to Chinese President Xi Jinping.

China's onshore yuan CNY=CFXS lost 0.5% to 7.2846 per dollar even though more losses have been capped by a strong fix by its central bank. China's blue chips .CSI300 fell 0.4% while Hong Kong's Hang Seng index .HSI skidded 1.4%.

"The Aussie has struggled to extend gains. China's steady hand on the yuan post-holidays helps at the margin, but the fact is that extra US tariffs are now in place on Australia's largest trading partner, with plenty of scope for escalation," said Sean Callow, a senior analyst at ITC markets.

"As the RBA prepares to cut rates while the Fed's easing pause could extend for some time, AUD seems likely to slip back below 0.62 near term."

Markets are 95% priced in for a cut from the Reserve Bank of Australia on Feb. 18, which would be the first easing in four years. 0#AUDIRPR

In New Zealand, data showed the jobless rate jumped to a four-year high of 5.1% in the fourth quarter, highlighting the ongoing economic pain. The rise was as expected, with the two-year swap rates NZDSM3NB2Y= holding flat at 3.3275%, having hit a three-year low just a day ago.

The weak report supported expectations the Reserve Bank of New Zealand will deliver another outsized half-point reduction in the 4.25% cash rate later this month.