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Australia, NZ dollars steady amid Korea tensions; focus turns to Jackson Hole

[SYDNEY] The Australian and New Zealand dollars hardly budged on Tuesday as traders were wary of geopolitical tensions in North Korea and held their bets ahead of an annual gathering of central bankers at Jackson Hole later in the week.

The Australian dollar inched up 0.1 per cent to US$0.7944 for its third straight session of gains, though activity was subdued.

The Aussie climbed to a two-year peak of US$0.8066 in late July but has since faltered, trading in a US$0.7808-US$0.7950 band. It is on track to end August in the red after solid performances in June and July.

Analysts expect trading to be muted until the Federal Reserve's annual Jackson Hole event where chair Janet Yellen and European Central Bank President Mario Draghi are due to speak. The US dollar has underperformed so far this year on doubts about President Donald Trump's ability to fulfil his economic agenda amid turmoil in the White House, and on the Fed's go-slow approach on tightening due to tepid inflation. Festering tensions with North Korea has also dragged on the greenback.

Market voices on:

South Korean and US forces began computer-simulated military exercises on Monday in the wake of North Korea's weapons programmes, angering the Asian communist regime. Pyongyang denounced the exercises as preparations for a nuclear war.

"The AUD is likely to continue to consolidate," Jo Masters of ANZ Research said in a note to clients.

"There is some risk that it remains this way for the rest of the week, as financial markets wait for the Jackson Hole Symposium this weekend." The New Zealand dollar was up 0.1 per cent and last stood at US$0.7328 after slumping to US$0.7224 last week, the lowest point since July 11. The kiwi is also set for a disappointing August following solid gains in the previous three months.

In New Zealand, a general election next month which is turning out to be a nail-biting affair is keeping some traders on the edge.

Labour leader Jacinda Ardern has emerged as a strong challenger to Prime Minister Bill English.

"The (ruling) National government's challenge in this election is to remind its non-core voters how important financial stability and economic success is to the country, and the benefits that accrue over time to a country that gets those things right," said Sean Keane of Triple T Consulting, who works under the umbrella of Credit Suisse.

"Getting that argument across in the face of the emotion and youthful energy that Ms Ardern is bringing to the Labour campaign is very difficult for a government that has already been in office for three terms."

New Zealand government bonds eased, sending yield one basis point higher across the curve.

Australian government bond futures were mostly flat, with the three-year bond contract unchanged at 98.030 and the 10-year contract up half a tick at 97.3700.