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Australia, NZ dollars cold shouldered as others talk of rate hikes

[SYDNEY] The Australian and New Zealand dollars were nursing losses for the week on Friday as markets priced in a greater risk of rate increases in the United States and the UK, but scant chance of any near-term tightening at home.

The Australian dollar was pinned at US$0.7992, to be down 0.7 per cent for the week so far having failed to hold the recent two-year peak of US$0.8125.

It slipped after the US dollar got a lift from unexpectedly firm inflation figures which reignited the risk of a December rate hike by the Federal Reserve.

Rising rates abroad are becoming a theme, with Canada having already tightened twice in recent months while the Bank of England took a surprisingly hawkish turn on Thursday by saying a hike was likely if inflation kept accelerating.

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That left sterling up at A$1.6742, having jumped 1.1 per cent on Thursday to a nine-week top at A$1.6801. The pound was also up a hefty 2.3 per cent for the week.

A hike in Australia is considered a more distant prospect given still low inflation, sluggish wage growth and the mountain of debt held by households.

While data this week showed employment was surging, it was being met by an increase in the supply of labour that limited the upward pressure on wages and inflation.

Analysts at National Australia Bank saw enough economic positives to drop their call for no rate move at all next year and instead pencil in two hikes.

Yet they thought the first increase would still not come until August.

"We are pencilling in rate rises of 25 basis points in August and November of 2018, although the precise path will be data dependent," said NAB chief economist Alan Oster.

"While we remain cautious about aspects of the economic outlook, we now believe the labour market will strengthen enough to allow the RBA to remove some of the emergency stimulus currently in place."

The New Zealand dollar was slightly lower at US$0.7221, to be down 0.4 per cent for the week so far.

The currency was vulnerable to further swings one week before a general election with the race too close to call.

A gain in the polls for the newly invigorated Labour government has tended to push the New Zealand dollar lower, due to uncertainty about the future of its trade and immigration policies.

It would represent a change in government after nine years of the National Party's hold on power.

"With the domestic political polls whipping about, it is little wonder that the NZD is too. That will no doubt remain the theme for at least the next week as the election remains too close to call," ANZ said in a research note.

The number of homes sold in New Zealand fell sharply in August but house prices were up, data showed on Friday, while separate figures showed manufacturing activity was robust last month.

New Zealand government bonds were lower across maturities, with the 10-year yield up 1.5 basis points.

Australian government bond futures slipped, with the three-year bond contract off 3.5 ticks at 97.855. The 10-year contract eased 1.75 ticks to 97.2250. REUTERS