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Australia dollar skids to 4-month lows, NZ dollar vulnerable

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[SYDNEY]The Australian dollar fell to four-month lows on Thursday, while the New Zealand dollar was vulnerable after the Federal Reserve remained upbeat on economic growth, setting a fire under the US dollar.

The Australian dollar skidded to US$0.7408, its lowest since mid-January, having dropped around a US cent and a half on Wednesday. It has lost 1 per cent so far this week, largely due to a shakeout in Aussie long positions.

"A break of the US$0.7400 level will send the Aussie longs running for the exit and could add more fuel to the downside momentum," said Stephen Innes, a senior trader at OANDA.

The next level of support was found at US$0.7385, the 61.8 per cent retracement of the January-February move.

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Much of the Aussie weakness came after the Fed made positive comments on the job market, reinforcing expectations of a rate hike in June.

Also undermining the Aussie was a sharp 6.5 per cent fall in iron ore on Wednesday. Iron ore is Australia's top export earner.

Markets found little comfort from a lower-than-expected Australian trade surplus, which slowed to A$3.1 billion in March from A$3.6 billion in February.

Still, such a sizeable outcome brings Australia closer to its first current account surplus in 40 years.

The New Zealand dollar edged up to US$0.6882, having recouped some losses from Wednesday's session when it shed 0.8 per cent.

Still, it was within reach of a 10-month trough of US$0.6847 set last week. Immediate support was found at US$0.6870 and resistance at this week's high of US$0.6969. It has erased nearly all the gains made earlier in the week following a solid global dairy price auction and a strong jobs report.

"The post-jobs data rally was short-lived, giving way to the resurgent US dollar and now targets US$0.6850 during the day ahead," said Imre Speizer, currency strategist at Westpac.

With little local data on the horizon, investors now turn their focus to international factors until the Reserve Bank of New Zealand's monetary policy statement and rate decision on May 11.

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

Australian government bond futures fell, with the three-year bond contract down 4 ticks at 98.110. The 10-year contract shed 4.5 ticks to 97.3350, while the 20-year contract was steady at 96.7550.