WELLINGTON/SYDNEY: The Australian and New Zealand dollars were stung by broad US dollar strength on Tuesday as rising US bond yields and a Federal Reserve study gave the market an excuse to book recent profits and unwind carry trades.
The Australian dollar fell to $0.9265, having dropped more than 1 percent overnight.
Support was found at $0.9263, last week's low, and the currency is still within the $0.9200 to $0.9500 range that has held since March. It has gained 4 percent so far this year.
Dealers said they were puzzled by the sudden spike in the US dollar and see the Aussie remaining under modest pressure.
"On Monday, I would have seen a test of $0.9400 possible, but now I think the Aussie will cool its heels until Thursday's jobs figures," said Sean Callow, a senior currency strategist at Westpac, seeing a possible move to $0.9240-50 until then.
Undermining the Aussie was research from the San Francisco Fed highlighting that investors are pricing in a lower trajectory for interest rate rises than members of the Fed itself are.
The result lifted Treasury yields and prompted investors to trim some of their Aussie net long positions. Against the euro and pound, the Aussie pulled back modestly from recent peaks though it was still hovering near its highest in more than a year.
It was last at 98.37 yen, from 98.83 touched Friday, while the euro nudged up to A$1.3902, from a 15-month low of A$1.3774 set Monday.
The Aussie has been a key beneficiary of super-loose monetary policies in Japan and Europe which has encouraged carry trades.
Investors borrow in yen or euro to invest in higher yielding Aussie assets.
At home, a measure of Australian business conditions pulled back from four-year highs in August, while booming conditions in the construction sector contrasted with gloom among miners. Other data showed housing finance rising 0.3 percent in July.
The New Zealand dollar eased to a fresh 6-1/2-month low of $0.8257 overnight.
Weighing on the kiwi are expectations that the Reserve Bank of New Zealand (RBNZ) may temper its hawkish view of the economy when it releases its quarterly Monetary Policy Statement on Thursday.
The kiwi stumbled against sterling, which clawed back from a 2-1/2-month low around NZ$1.9355 hit on Monday, and eased from a six-week high versus the euro.
The kiwi, however, managed to push higher against the yen and its Aussie neighbour.
The RBNZ is widely expected to hold its lending rate at 3.5 percent following four consecutive hikes.
Market participants said that any suggestion that it may wait until early 2015 before resuming its tightening cycle may push the kiwi towards $0.8200.
"Quite clearly the market thinks the Reserve Bank is going to be dovish," said Tim Kelleher, head of institutional sales at ASB. Initial support was seen at $0.8242, a low hit in February, but Kelleher said that upward momentum in the US dollar could take the kiwi down to $0.8225 before the RBNZ's review.
Bids suspected between $0.8225 and $0.8175 may provide some support, but the kiwi could break lower if the RBNZ announces a big downward revision to its bill rate forecast, considered as a proxy for its outlook for official rates.
A push below $0.8175 would open the door to a test of the year's low of $0.8050. New Zealand government bonds eased, pushing yields as much as 4.5 basis points higher at the long end of the curve.
Australian government bond futures plunged to multi-week lows, with the three-year bond contract off 8.5 ticks to 97.195.
The 10-year contract dropped 10.5 ticks to 96.455 in a bearish steepening of the curve.
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