The New Zealand dollar weakened as worsening relations between China and both the US and Australia continue to take centre stage in investors' minds.

The kiwi was trading at 60.97 US cents at 5pm in Wellington from 61.21 cents at the same time yesterday. However, the domestic currency is likely to hold above the 59.35 cents level it ended in New York last Friday. The trade-weighted index was at 68.94 from 69.05.

Recent developments include news that China's National People's Congress convening today will be deliberating on a bill to crack down on protests such as the pro-democracy demonstrations in Hong Kong that rocked the former British colony last year.

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US President Donald Trump, who has been raising tensions with China by blaming it for the coronavirus pandemic, has vowed to "react strongly" if China goes ahead with measures to gain firmer control of Hong Kong.

But also worrying investors are reports that China's government is warning state-owned power plants to avoid buying new shipments of Australian coal and to favour domestic products instead.

Australia's Deputy Prime Minister Michael McCormack is insisting China will continue to buy Australian coal.

"China needs Australia just as much as Australia needs China," McCormack told a media conference today. "They will continue to need the products that we export."

But the coal rumours come hard on the heels of Beijing slapping an 80 percent tariff on Australian barley and banning four major Australian meat works from selling red meat to China.

That was in the wake of Australia's support for an independent study of the origins of covid-19, which is believed to have begun at a market in the Chinese city of Wuhan, and the measures various governments have taken to combat the virus.

China is Australia's largest trading partner, just as it's New Zealand's largest trading partner. Australia is NZ's second-largest trading partner.

Mike Shirley, a dealer at Kiwibank, said the announcement by Fitch Ratings that it is putting Australia's "AAA" credit rating on negative watch "weighed on the Aussie dollar this afternoon and really dragged the kiwi along for the ride."

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Among its reasons for a potential downgrade of Australia's rating were the economic impact of covid-19 but it also mentioned trade and geopolitical tensions with China.

"Australia's exports would be particularly affected if China's recovery were to falter. International and bilateral trade tensions with China also pose risks," Fitch said.

Shirley said concerns about covid-19 are receding somewhat and have been replaced by China concerns, similar to the concerns that dominated international markets all last year.

"Going into the weekend, the focus will probably be on headlines and tweets around China," he said.

The New Zealand dollar was trading at 93.24 Australian cents at 5pm, unchanged from the same time yesterday. It was at 49.95 British pence from 50.16 pence, at 55.80 euro cents from 55.84 cents, at 65.51 yen from 65.87 yen and at 4.3396 Chinese yuan from 4.3490 yuan.

The bid price on the two-year swap rate closed at 0.1475 per cent from 0.1275 per cent yesterday, while 10-year swaps were at 0.5825 per cent from 0.5850 per cent.