SYDNEY/WELLINGTON: The Australian and New Zealand dollars skidded to multi-month lows on Thursday as the Federal Reserve's outlook for raising rates underlined the diverging path between the United States and most developed economies, pushing the greenback higher.
The Australian dollar was at $0.8960, having lost 1.5 percent overnight, its largest daily drop in more than a year. The currency dropped as far as $0.8939, the lowest in six months. It has slumped more than 4 cents in two weeks.
Solid support was found at $0.8916, the March 3 low, but a break could open the way to $0.8660, the 2014 trough.
"There have been three broad influences over the past fortnight serving to push the Aussie dollar lower," said Savanth Sebastian, an economist at CommSec, citing lower commodity prices, recent softness of Chinese economic data and a stronger US dollar on speculation about when US rate hikes will begin.
The Fed confirmed that its bond-buying stimulus program would end next month, and its new projections suggested some officials saw the risk that rates might have to rise at a faster pace when the bank eventually starts tightening.
"The Aussie dollar now appears to be more comfortable near US88-92 cents rather than US90-94 cents," Sebastian added.
The recent drop should be welcomed by the Reserve Bank of Australia (RBA), which is counting on a weaker currency to help bolster the export sector. Losses were mainly against the US currency, with the Aussie actually rising on the yen to 97.30.
With the Fed meeting out the way, the next big test for markets will be the referendum on Scotland's independence later Thursday. The New Zealand dollar shared a similar fate as its Aussie cousin, having plumbed fresh seven-month lows at $0.8079.
It has tumbled around 8 cents since July and a break below $0.8052 would be the weakest level in one year. It was last at $0.8112.
Domestic data showed the New Zealand economy grew at a solid 0.7 percent in the second quarter, while the annual rate hit a decade-high of 3.9 percent.
A slowdown in commodity exports, notably dairy and meat, weighed but was offset by broad-based growth in domestic sectors, such as professional services, and retail.
The data, a touch above market picks but just below the central bank's forecast, did not change expectations that the Reserve Bank of New Zealand will keep the official cash rate steady into early next year at least.
"With the RBNZ having already delivered 100 basis points of OCR hikes, a reasonable degree of uncertainty over how this is impacting economic activity, and with question marks hanging over the trade-off between activity and inflation, there is a strong case for OCR pauses," said ANZ senior economist Mark Smith.
New Zealand government bonds weakened, with yields rising as much as 5 basis points.
Australian government bond futures fell to multi-month lows, with the three-year bond contract off 6 ticks to 97.050.
It slipped to 97.040, the lowest since May. The 10-year contract also shed 6 ticks to 96.260, close to a three-month trough.
The move was even more pronounced in the cash bond markets with two-year yields topping 2.85 percent, a level not seen since April.
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