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Australia, NZ dollars falter on yen as risk-off sentiment dominates

[SYDNEY] The Australian and New Zealand dollars stumbled to multi-week lows against the Japanese yen on Tuesday, as escalating tensions over North Korea pushed investors to safe harbours.

North Korea fired a missile that passed over northern Japan, the latest act of provocation by Pyongyang that has ramped up tensions in the region over the past month. That has forced funds to pare back riskier positions in carry trades which typically favour the higher-yielding Antipodeans.

The Australian dollar sank 0.9 per cent to 86.20 yen, the lowest since Aug 11. Against the Swiss franc, the Aussie hit a one-month trough.

The New Zealand dollar lost 0.8 per cent to 78.65 yen, a level not seen since May 30.

Japan is the world's biggest creditor nation and there is an assumption that investors there will repatriate funds at times of crisis.

North Korea fired a missile early on Tuesday that flew over Japan and landed in the Pacific waters off the northern region of Hokkaido.

The United States, Japan and South Korea considered that launch to have been a ballistic missile test while North Korea said it was a rocket carrying a communications satellite into orbit.

The last North Korean projectile to fly over Japan was in 2009.

"The Aussie dollar is lower as market nervousness and uncertainty ratchets up a few notches," said Greg McKenna, chief market strategist at AxiTrader in Sydney.

"It may be a storm in a tea cup. But until forex traders hear from US Secretary Rex Tillerson or President Donald Trump himself, the Aussie may remain under pressure," Mr McKenna said.

North Korean leader Kim Jong Un had threatened to fire missiles into the sea near the US Pacific territory of Guam and Mr Trump warned Pyongyang would face "fire and fury" if it bullied the United States.

Against the US dollar, the Aussie slipped to US$0.7926 from the previous session's US$0.7973. The Aussie has found support around 79 cents after hitting stiff chart resistance at a two-year peak of US$0.8066 in late-July.

Concerns about damage from Tropical storm Harvey and its potential impact on the US economy has also weighed on the greenback.

New Zealand government bonds rose, sending the yield about four basis points lower at the long-end of the curve.

Australian government bond futures climbed, with the three-year bond contract up four ticks at 98.030. The 10-year contract also added four ticks to 97.380.