Australia, NZ dollars off multi-week highs, Fed in focus

[SYDNEY] The Australian and New Zealand dollars drifted off multi-week highs on Wednesday, with the market focused on what the Federal Reserve might signal about its massive debt portfolio at a policy meeting later in the session.

The New Zealand dollar was a touch lower at US$0.7219 but still near three-month highs of US$0.7228 touched on Tuesday. Chart resistance was found at US$0.7230 and US$0.7244 with support around US$0.7200.

It briefly dipped below 72 cents after first-quarter current account data showed a larger-than-expected annual deficit due to soaring imports.

While the import surge reflected strong domestic demand, it also pointed to some downside risk to New Zealand's gross domestic product figures due on Thursday.

Economists forecast the economy grew 0.7 per cent in the first quarter against the fourth, up from 0.4 per cent in the final quarter of 2016.

The Australian dollar held steady at US$0.7539, having met heavy resistance ahead of a double top at US$0.7565 and US$0.7568. Support was found at US$0.7520.

A raft of data out of China, Australia's top export market, showed the economy was holding up. "Chinese data was roughly in line with expectations and ultimately this will underpin iron ore prices and support the Aussie dollar," said Elias Haddad, a strategist at Commonwealth Bank of Australia. Iron ore is Australia's largest export earner.

The market's focus is now on the Fed's policy decision at 1800 GMT with a news conference to follow from Chair Janet Yellen.

Investors fully expect a rate rise and the attention will be on the outlook for policy and particularly when the central bank might begin to wind down its massive portfolio of US debt.

The pound bounced off multi-week lows against the Antipodeans after higher-than-expected inflation in the UK and reports Britain's ruling Conservative Party was likely to sign a deal to form a minority government.

New Zealand government bonds gained, sending yields 1 basis points lower.

Australian government bond futures were mixed, with the three-year bond contract off 1.5 ticks at 98.235.

The 10-year contract was steady at 97.5750, while the 20-year contract added 1.75 ticks to 97.0475, nearing a seven-month peak.

REUTERS