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Australia, New Zealand dollars near multi-month low; greenback enjoys Fed tailwind

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The Australian and New Zealand dollars hovered near multi-month lows on Tuesday as traders wagered interest rates in the two countries will stay at record lows for some time yet compared to the steady pace of tightening by the US Federal Reserve.

[SYDNEY] The Australian and New Zealand dollars hovered near multi-month lows on Tuesday as traders wagered interest rates in the two countries will stay at record lows for some time yet compared to the steady pace of tightening by the US Federal Reserve.

The Australian dollar held at US$0.7376, within spitting distance of a 1-1/2 year trough of US$0.7311 touched earlier this month.

The New Zealand dollar traded at US$0.6786 from a near two-year low of US$0.6759 set in July.

The losses in the antipodeans came as longer-dated Treasury yields jumped on bets the Fed will stay on its tightening path despite U.S. President Donald Trump bemoaning an appreciating currency.

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The dollar's index, which measures the greenback against a basket of major currencies, has strengthened 2.7 per cent so far this year compared to a near 10 per cent drop in 2017.

The disparity in policy outlook between the United States and other major economies has been the primary driver of a buoyant dollar this year.

"We have a bearish view on the Aussie," said Steven Dooley, currency strategist at Western Union Business Solutions.

"In an environment where the Fed is raising rates and the RBA is on hold, based on market expectations at least until 2020, our year-end target for the Aussie is US$0.7200."

Mr Dooley sees critical chart support at US$0.7320, tipping a break below to possibly see the Aussie easing to US$0.7150.

Investors will next turn their attention to Australia's consumer price data due 0130 GMT on Wednesday. Economists polled by Reuters expect core inflation, a measure closely watched by policymakers, will continue to undershoot the central bank's 2-3 per cent target band in the second-quarter.

Lukewarm consumer prices is a major reason the Reserve Bank of Australia (RBA) has kept rates at a record low 1.50 per cent for nearly two years now. Interbank futures do not fully price in a hike until the end of next year.

The story is much the same in New Zealand where the country's central bank is awaiting a revival in inflation as it keeps rates at an all-time trough of 1.75 per cent.

Sharon Zoller, chief economist at ANZ, said the kiwi was "largely at the whims of global forces," for now while adding the bank has a mild upward bias on the currency in the near term.

Worries about a further escalation in the Sino-US trade war have also weighed on the antipodean currencies which are often played as a liquidy proxy for Chinese assets.

In line with global debt, New Zealand government bonds eased, sending yields 4 basis points higher at the long end of the curve.

Australian government bond futures slipped to one-month lows, with the three-year bond contract off 3 ticks to 97.83. The 10-year contract fell 5 ticks to 97.275. 

REUTERS