Aussie & NZ dollars pressured, rate cut seen looming

WELLINGTON/SYDNEY: The Australian and New Zealand dollars were under pressure near six-week lows on Wednesday as speculation mounted the Reserve Bank of Australia (RBA) was ready to cut interest rates to cushion the economy from falling commodity prices.

While the central bank held rates steady at 3.5 pct at its September meeting on Tuesday, talk is rife it is prepared to cut next month given plunging iron ore prices and concerns about a slowdown in China, Australia's biggest customer.

Speculation will overshadow Australia's Q2 GDP report, which is expected to show solid economic growth of 0.7 pct in the second quarter and 3.6 pct for the year.

Aussie at $1.0225, after slipping as far as $1.0215, its lowest since July 25, from $1.0285 in late local trade on Tuesday.

Westpac says Aussie in a major downward reversal, with an eventual move to $0.9700-$0.9900 possible.

NZ dollar also lower, hitting a six-week trough of $0.7922 before recouping to $0.7945, from $0.7955 on Tuesday.

Another strong outcome from the latest dairy price auction lessens broader kiwi pressure. Dairy prices rose six pct, adding to the 11.3 pct rise last month.

But Kiwi also seen heading down technically, with near-term support around $0.7885, the low on July 26, then $0.7810.

In the broader markets, Wall Street and the CRB commodity index weaker. The euro retreats against the dollar after recent gains, as investors await details of European Central Bank plan to tackle the region's debt crisis.

US manufacturing data disappointed, but auto sales were strong.

Some pullback in the single currency against the Antipodeans, after hitting two-month highs this week. It holds last around A$1.2285 against the Aussie and at NZ$1.5808 vs the kiwi.

NZ government bonds softer early, with yields up around 3.5 bps across the curve, inline with US Treasuries.

Australian bond futures calm so far, with the three-year contract flat at 97.580. The 10-year contract was 0.010 points lower at 97.985.

The yield curve should steepen once the market prices in more chance of a rate cut in October.