[SYDNEY] The Australian and New Zealand dollars held near seven-month lows on Wednesday, weighed down by a strengthening greenback as traders anticipated multiple United States interest rate hikes in 2017 after this year's single move.

The Australian dollar stood at US$0.7260, from a trough of US$0.7223 touched on Tuesday. The Aussie is now down 0.3 per cent for the year, a far cry from gains of more than 6.5 per cent in early November.

An extended fall in Chinese steel and iron ore futures over the past five days also added pressure on the Aussie. Iron ore and coal are Australia's two biggest exports.

The Aussie has been on a downward trend since Donald Trump won the November US presidential election, as his policies are widely seen as inflationary.

The Federal Reserve increased interest rates last week while signalling a faster pace of hikes next year, sending both Treasury yields and the greenback soaring.

Traders say the near-term outlook for the Aussie appears gloomy, with the next stop seen at US$0.7150. Key resistance lies at 73 US cents, a breach of which could set a small rally.

"The toxic combination of a stronger US dollar and tumbling industrial metal prices weighed negatively on the Aussie," said Stephen Innes, senior currency trader at OANDA Australia and Asia Pacific. "Without the support of commodity prices, the Aussie will remain susceptible to a steepening US yield curve."

The Aussie did well against the yen, rising for a second straight day after the Bank of Japan maintained its policy settings to keep short-term rates in negative territory.

The euro too fell against the Aussie, ending its three-day winning streak to stand at AUS$1.4306, not far from a seven-month low touched last week.

The New Zealand dollar rose 0.4 per cent to US$0.6938, a largely technical bounce after five consecutive days of falls. It hit a seven-month low of US$0.6883 on Tuesday.

Traders shrugged off a dip in milk prices in the latest dairy auction following strong gains since July.

Data on migration showed another strong month of net arrivals, boosting both demand for goods and services in the economy and the supply of labour.

Meanwhile, trade data showed a higher-than-expected deficit of NZ$750 million in November.

New Zealand government bonds fell, sending yields about 2 basis points higher across the curve.

Australian government bond futures were subdued too, with the three-year bond contract off 2 ticks at 97.900. The 10-year contract was flat at 97.1150.

REUTERS