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Australia dollar restrained by Fed hike bets, kiwi up on dairy

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The Australian and New Zealand dollars were subdued on Wednesday after the US dollar received a lift on speculation the US Federal Reserve may raise interest rates this year.

[SYDNEY] The Australian and New Zealand dollars were subdued on Wednesday after the US dollar received a lift on speculation the US Federal Reserve may raise interest rates this year.

The Australian dollar edged down to US$0.7690, from a peak of US$0.7750 set on Tuesday, a key resistance level that has rebuffed bulls three times in the past week.

Part of the weakness came after the influential head of the New York Federal Reserve said the Fed could raise interest rates as soon as September.

Markets are now pricing in 55 per cent chance of a Fed hike by the end of the year, up from 45 per cent on Monday.

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Australian two-year bonds now offer only 70 basis points more than their US counterpart, near the lowest premium since 2001.

Still, the Aussie remains within reach of a three-month high of US$0.7760 set last week and some dealers are bullish. "Trading Aussie from the short side has been an exercise in futility of late, even in the face of bearish setups," Stephen Innes, senior currency trader at FX at Oanda Australia and Asia Pacific.

Notably, the Aussie has rallied two US cents since the Reserve Bank of Australia (RBA) cut interest rates to record lows early this month.

The Aussie came off highs against the pound at A$1.6965 after higher-than-expected UK inflation data.

Sterling had hit its lowest in nearly three years at A$1.6701 with investors awaiting British employment data due later in the session and jobs figures in Australia on Thursday.

Economists expect a rise of 11,000 in local jobs in July, with a steady unemployment rate of 5.8 per cent.

The New Zealand dollar rose for the third day to reach US$0.7294, helped by a jump in global dairy prices.

A fortnightly auction held in the early hours of Wednesday morning showed dairy prices had risen 12.7 per cent, adding to the view that New Zealand's main export earner might be on the road to recovery.

"A bumper result was expected, but expectations were still exceeded," said BNZ currency strategist Jason Wong, adding that the soaring Kiwi would now encounter resistance around US$0.7300.

Upbeat domestic data on employment and unemployment gave the currency a further boost.

New Zealand government bonds eased, sending yields 5 basis points higher at the long end of the curve.

Australian government bond futures dipped, with the three-year bond contract off 2 ticks at 98.620. The 10-year contract shed 3 ticks to 98.0800, while the 20-year contract lost 3.5 ticks to 97.5400.

REUTERS

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