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Australia, NZ dollars pare losses on Fed hike scepticism

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The Australian dollar bounced from near 1-month lows on Tuesday as traders grew sceptical there would be an increase in US rates as soon as September, though December remains a possibility.

[SYDNEY] The Australian dollar bounced from near 1-month lows on Tuesday as traders grew sceptical there would be an increase in US rates as soon as September, though December remains a possibility.

The Australian dollar held at US$0.7569, up from a trough of US$0.7525 on Monday, its lowest since Aug 2.

Trading was muted with investors unsure when US policy might change. Federal Reserve Chair Janet Yellen said on Friday the case for a rate increase was strengthening, but provided little detail on when it would next move.

Dealers also reported talk that the August payrolls report on Friday might miss expectations and make it that much harder for policymakers to contemplate a September tightening.

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Fed fund futures imply only a 36 per cent chance of a hike next month, but that does rise to 76 per cent for December. "The markets focus is shifting to a high probability of 2016 Fed lift off, this should ultimately be US dollar supportive, and the Aussie dollar yield appeal could wane," said Stephen Innes, senior currency trader at FX and CF provider OANDA Australia and Asia Pacific.

The Aussie has been on a downtrend since hitting a near 3-1/2 month high of US$0.7760 earlier in August. It has found solid chart support around US$0.7530 but a break there could see it touch US$0.7450, a level last visited on July 27.

At home, the focus is on capital expenditure and retail sales numbers - both market sensitive releases - due on Thursday.

The New Zealand dollar recovered on Tuesday after hitting a two-week low in the previous session.

"More of the same for the NZD, grinding higher in the absence of any major news, but vulnerable to downside spikes on global events," said ANZ senior rates strategist David Croy in a research note.

Data released on Tuesday showed New Zealand building consents slipped 10.5 per cent in July, but that followed a surge of 21.9 per cent the month before and pointed to still strong construction activity.

New Zealand government bonds gained, sending yields 6 basis points lower at the long end of the curve.

Australian government bond futures rose in line with US Treasuries, with the three-year bond contract adding 3 ticks at 98.620. The 10-year contract climbed 5.5 ticks to 98.165.

REUTERS

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