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Australia, New Zealand dollars hold gains, bears squeezed in sterling slide

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The Australian and New Zealand dollars consolidated recent gains on Tuesday as fears over trade tariffs faded for the moment, while a politically-inspired pullback in sterling put a squeeze on short positions.

[SYDNEY] The Australian and New Zealand dollars consolidated recent gains on Tuesday as fears over trade tariffs faded for the moment, while a politically-inspired pullback in sterling put a squeeze on short positions.

The Aussie dollar was firm at US$0.7475, having touched a three-week peak at US$0.7484 overnight. A break of resistance around US$0.7440 had triggered stop-less bids with the speculative market short after weeks of selling.

It was aided by a sharp fall in sterling as ministerial resignations threw the British government of Prime Minster Theresa May into turmoil.

The pound had pulled back to A$1.7727, having been as high as A$1.7938 early on Monday.

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Market voices on:

"We anticipate the downward pressure on GBP will continue, and intra-day volatility will remain high, as speculation of a "no confidence" vote and leadership challenge mounts," said Richard Grace, chief currency strategist at CBA.

At home, the latest NAB business survey showed sales and profits stayed strong in June, though employment intentions eased back a touch.

The New Zealand dollar added 0.2 per cent to US$0.6850 as it extended a recovery from two-year lows hit earlier in the month, helped by some upbeat local spending data.

Electronic retail spending jumped 0.8 per cent in June, official data showed, providing the already rising kiwi with an extra burst.

Nevertheless analysts say the currency would likely encounter resistance around US$0.6860, with many speculative short positions already flushed out in the bounce from US$0.6688.

"Positioning in the NZD is likely becoming cleaner and so we'd start to look to fade this recent move higher," said ANZ economists in a research note.

New Zealand government bonds eased, sending yields 2.5 basis points higher towards the long end of the curve.

Australian government bond futures dipped as Asian equity markets steadied, with the three-year bond contract off 1.5 ticks at 97.915. The 10-year contract eased 2 ticks to 07.3600.

REUTERS