SYDNEY/WELLINGTON: The New Zealand dollar dangled near three-month lows on Thursday and the Aussie struggled to make headway as investors waited to see how bold, or not, the European Central Bank might be in tackling the threat of deflation.
The New Zealand dollar found a tentative footing at $0.8434, clawing back from a three-month low of $0.8401 set Wednesday.
The kiwi has come under pressure in recent weeks amid a steady decline in prices for dairy, the country's biggest export earner.
It also hit a six-month trough against its Aussie neighbour and plumbed its lowest since March on a trade-weighted basis.
But some analysts said that the kiwi's current selling momentum, may lose steam below $0.8400 given that the outlook for the domestic economy remains solid.
"At the moment we feel $0.8360, around the 200-day moving average, is where the current move will bottom out," said BNZ currency strategist Raiko Shareef.
"At that point the market will have to determine whether the kiwi should be lower than that, and it will be cautious of pushing it below that before the RBNZ's policy statement next week." Markets are pricing in a 91 percent chance that the Reserve Bank of New Zealand will raise its official interest rate by 25 basis points to 3.25 percent next week.
Yet, a still-strong currency and softer dairy prices have prompted speculation that the pace of further hikes may slow.
In Australia, the Aussie held steady at $0.9278, having recovered from a modest dip following soft Australian trade data.
Stiff resistance was found near 93 cents, a level it has been unable to pierce despite solid economic growth data earlier this week.
The Aussie has been stuck in a $0.9203-$0.9410 band since late March.
Markets are awaiting the outcome of the ECB policy meeting at 1145 GMT and President Mario Draghi's news conference at 1230 GMT.
Economists polled by Reuters poll expected the ECB to cut its main refinancing rate by 15 basis points to 0.10 percent and the deposit rate to -0.10 percent from zero.
"If the ECB delivers a big policy easing package, it may put downward pressure on volatility, which would be Aussie positive against the yen in particular," said Joseph Capurso, a strategist at Commonwealth Bank Australia.
The Aussie was last at 95.14 yen, having gained more than two yen in two weeks. Australian government bond futures softened, with the three-year bond contract down one tick at 97.150.
The 10-year contract eased half a tick to 96.220, well off a 10-month high of 96.405 set last week.
New Zealand government bonds edged up, nudging yields a basis point lower across the curve.
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