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Australia, NZ dollars set for another week on the cheap

[SYDNEY] The Australian and New Zealand dollars gave back gains made the previous day and hovered near one-month lows on Friday in what is shaping up to be a third week of poor returns.

The Australian dollar held at US$0.7892, within spitting distance of US$0.7808 touched this week, the lowest point since July 18.

For the week, it is mostly unchanged following two consecutive weekly losses.

The New Zealand dollar stood at US$0.7292 after dropping to US$0.7224 earlier this week to its lowest since July 12.

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It is down 0.4 per cent for the week, on track for its third straight weekly loss.

The antipodean currencies scaled two-year highs in late July but have since faltered as policymakers in both countries emphasised the need to maintain record-low interest rates and as rising geopolitical tensions over North Korea curbed risk appetite.

The Reserve Bank of Australia (RBA) has held rates at a record low 1.50 per cent since August 2016 while its New Zealand counterpart has stayed pat at 1.75 per cent after slashing rates thrice last year.

As the war of words between the United States and North Korea escalated last week, investors pared back riskier positions in carry traders which typically favour the higher-yielding Antipodeans over safer harbours such as the yen and Swiss franc.

Analysts don't have an upbeat view on the Aussie or the kiwi as the interest rate differentials in favour of the two countries narrow in tandem with rising borrowing costs in the United States. The Federal Reserve is expected to continue to raise rates, although it has recently flagged a slower pace of tightening.

"While further short-term upside in the A$ is possible, our view remains that the downtrend... will ultimately resume," said Shane Oliver, Sydney-based chief economist at AMP.

A Reuters poll of analysts predicted the Aussie at US$0.7600 over a six and 12-month horizon. The Kiwi is seen at US$0.7200 in one year.

New Zealand government bonds rose, sending yields down two basis points across the curve.

Australian government bond futures gained too, with the three-year bond contract up two ticks at 98.050. The 10-year contract added 2.5 basis points to 97.3850.