WELLINGTON/SYDNEY: The Australia and New Zealand dollars were languishing near two-month lows on Thursday after strong growth data sent the US dollar soaring, despite a dovish statement by the Federal Reserve.
The Australian dollar dropped as far as $0.9301, its lowest since early June after data showed the US economy rebounded sharply in the second quarter.
The Aussie last stood at $0.9330 to show a loss of around 1 percent this month, its largest decline since January.
A break below $0.9301 would target $0.9200-20.
The New Zealand dollar was knocked to a near two-month low of $0.8463, but recouped some of its losses to trade at $0.8500 following the Federal Reserve's reaffirmation that it would be in no hurry to start raising rates.
Government bonds were shunned across the board, with Australian futures dropping to multi-week lows. The three-year bond contract fell 6 ticks to 97.290, having touched a one-month trough of 97.280.
The 10-year contract shed 8 ticks to 96.500, leading to a steepening of the yield curve. The premium offered by Australian 10-year yields over Treasuries stood around 97 basis points, up from a recent low of 89 basis points.
Matthew Johnson, a strategist at UBS, expects the gap between US and Australian bond yields to widen as the market prices out the chance of a rate cut from the Reserve Bank of Australia (RBA).
"The market is too pessimistic about the RBA.
The profile of rate hikes in the forwards is too low," he said, seeing the spread widening to around 105 basis points in the near-term.
Interbank futures pricing implies a one-in-five chance of a cut from record low rates of 2.5 percent by year end. Swap markets see rates steady on a 12-month horizon.
Investors are now awaiting US employment and manufacturing surveys in China as well as the euro zone on Friday. Another month of healthy US jobs growth will only embolden dollar bulls, with markets continuing to look for signs of when the Fed will eventually lift interest rates.
Australian data released on Friday was mixed with private sector credit up a strong 0.7 percent in June, but approvals to build new homes falling 5 percent.
Other figures showed a drop in export and import prices for the second quarter which implied Australia's terms and trade fell around 5 percent in the quarter.
The euro trimmed losses against the Aussie at A$1.4363 , but was still on track to end the month 1 percent lower.
The common currency has lost nearly 7 percent so far this year.
The New Zealand dollar performed better than the Aussie, which eased to NZ$1.0979. It had climbed to a seven-month high of NZ$1.1047 earlier in the week.
Against the US dollar, the kiwi has fallen 3 cents in a week driven by a central bank decision to pause rate rises, aggressive jawboning about the currency's strength and dairy giant Fonterra's slashing of its forecast payout to suppliers.
"The market has sold the NZ dollar heavily over the past two weeks, and looks to be running out of breath," said BNZ strategist Raiko Shareef.
"We would not be surprised if the currency chose to settle around the 0.8500 figure if US data on Friday contained no surprises." Near-term support is seen around the 200-day moving average at $0.8450, with $0.8530 the first hurdle higher.
The kiwi looks set to finish the month down 3.1 percent, although it is still 3.2 percent higher for the year.
New Zealand government bonds tracked the sell off in US Treasuries, with local yields 6 basis points higher along the curve.
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