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Aussie at 1-month high after construction data; kiwi muted

[SYDNEY] The Australian dollar climbed to a one-month high on Wednesday after second quarter construction spending rose the most on record, a surprising outcome that could lift economic growth well above initial expectations.

The Australian dollar was up at US$0.7985, a level not seen since Aug 1 and compared with Tuesday's US$0.7954.

The Aussie hit a two-year peak of US$0.8066 in late July but has since faltered at stiff chart resistance around 80 US cents.

It is poised to end August almost flat as investors remained cautious amid geopolitical tensions involving North Korea and in the absence of any major triggers.

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The Aussie got a strong boost from Wednesday's data showing construction work done surged 9.3 per cent in the second quarter, from the first. That was the largest increase ever and dwarfed forecasts for a rise of just one per cent.

"At this stage today's data suggests that there are upside risks to our 0.5 per cent second-quarter GDP forecast," said Kristina Clifton, economist at Commonwealth Bank.

Australia's second-quarter gross domestic product data is due Sept 6.

Across the Tasman Sea, the New Zealand dollar held steady at US$0.7260 but slipped to a 5-1/2 low against its Australian counterpart.

The currency came under some selling pressure after outgoing central bank governor Graeme Wheeler emphasised the need for a lower local dollar to help push up inflation and rebalance growth.

"In conjunction with stronger Australian data, this was enough to spur AUD/NZD to within touching distance of the 1.10 level, its highest point since March of this year," JP Morgan said in a note.

The New Zealand dollar has broadly decreased since late July as softening economic indicators and uncertainty over the outcome of its general election weighed on the local currency.

Investors also pushed back their bets on the timing of the next rate hike after the central bank maintained its neutral stance at the August policy meeting.

The kiwi is set to end the month down 3.3 per cent, the biggest fall since Jan 2016.

Speculation that the Reserve Bank of New Zealand may be closer to intervening in the foreign exchange market has also taken the shine off the kiwi, although analysts say the central bank is nowhere near taking that path.

New Zealand government bonds slipped, sending yields up 3.5 basis points at the long end of the curve.

Australian government bond futures inched lower, with the three-year bond contract five ticks down at 97.970. The 10-year contract fell 4.5 ticks to 97.3350.

REUTERS