Australia, NZ dollars at multi week lows on the euro, eye Fed

[SYDNEY] The Australian and New Zealand dollars slipped against the euro on Monday as the single currency got a boost from reports the European Central Bank was preparing the ground for a gradual phasing out of its aggressive stimulus measures.

The euro rose for a fourth straight session to A$1.4183, a level not seen since Feb 2. Against the New Zealand dollar, it hit a four-month peak of NZ$1.5453.

Some members of the ECB's governing council discussed the possibility of higher interest rates at last week's policy meeting, sources told Reuters, adding the discussion was brief and the suggestion did not receive broad support.

After struggling against the Antipodean currencies since late last year, the euro smartly rebounded in March, to stand 2.4 per cent and 4.9 per cent stronger against the Aussie and the Kiwi respectively.

The Aussie, however, did well against the greenback even as strong US jobs report cemented expectations of faster rate hikes by the Federal Reserve.

The Australian dollar stood at US$0.7549, after rising 0.5 per cent on Friday.

US employers hired workers at a robust pace in February, beating expectations, and wages grinded higher.

Fed fund futures showed investors pricing in more than a 90 per cent chance of an increase in US overnight interest rates at its two-day policy meeting ending on Wednesday.

Analysts expect the Fed to leave its economic projections, known as the 'dot plot', unchanged in part due to uncertainty about what fiscal measures might be pursued by President Donald Trump.

"Given the recent USD strength, and that a Fed rate hike is fully priced, we see risks the USD gently eases after the FOMC meeting," said Joseph Capurso, senior currency strategist at CBA.

"But the rally in AUD is limited by the recent declines in iron ore prices. In addition, we think market pricing for a RBA rate hike early in 2018 is overdone."

The New Zealand dollar held at US$0.6921, coming back up from a 10-week trough of US$0.6890 hit last week.

Burdened by weak dairy prices and soft economic data the currency lost 1.7 per cent last week, before snapping a seven-session losing streak to nudge higher on Friday.

"That could mark the beginning of a consolidation phase, although the announcement later this week could still interrupt that," Bank of New Zealand currency strategist Jason Wong said.

Locally, investors will turn their attention to data on the country's economic output due out Thursday which is expected to show the economy grew 0.7 per cent in the December quarter.

New Zealand government bonds gained, sending yields three basis points lower.

Australian government bond futures rose, with the three-year bond contract up two ticks at 97.84. The 10-year contract climbed three ticks to 97.0225.

REUTERS