SYDNEY/WELLINGTON: The Australian and New Zealand dollars regained some ground on Wednesday on speculation the US Federal Reserve would maintain a pledge on low rates when a two-day policy meeting ends later in the session.
The Australian dollar was last at $0.9071, having rallied nearly 1 percent to a peak of $0.9113 on Tuesday, a recovery from a recent 4-percent slide. The Aussie touched a six-month trough of $0.8984 Monday.
Much of the surge came as the US dollar trimmed recent hefty gains after an influential Fed watcher said the US central bank may not sound as hawkish as some had wagered on.
"For the Aussie, this means we see a risk on the upside," said Annette Beacher, head of Asia Pacific research at TD Securities in Singapore.
"What is priced in is a hawkish Fed, but if the Fed leaves the words "considerable period" in its statement, it will push the US dollar down and support the Aussie," she said, seeing a potential return to 91-92 cents by the end of the week.
The Aussie was further bolstered by reports that China's central bank was pumping more liquidity into the country's five largest banks.
The market often uses the Aussie as a liquid proxy to hedge against weakness, or wager on strength, in China.
Immediate support was found around $0.9055 ahead of a major bulwark at $0.8984, which is the 61.8 percent retracement of the 2014 climb from $0.8660 to $0.9505.
Across the Tasman, the New Zealand dollar also bounced from seven-month lows to be last at $0.8174, but was again hostage to the Fed.
"We think their statement will be nuanced and fairly subtle, but the general tone will acknowledge that the US economy continues to grow reasonably well and there are risks of an overly accommodative policy," said ANZ senior currency strategist Sam Tuck.
"The message going forward will be that future policy is data dependent."
The kiwi got some support from the overnight global dairy auction, which showed the overall price index unchanged after declining in the previous five auctions. Domestic data showed New Zealand's annual current account deficit was the lowest in three years, thanks in large part to dairy exports.
Near term support for the kiwi is seen at $0.8140 and more solidly around $0.8120, with resistance at the overnight high of $0.8231.
New Zealand government bonds were largely flat.
Australian government bond futures eased, with the three-year bond contract down 3 ticks at 97.110. It touched a five-month trough of 97.090.
The 10-year contract shed 2.5 ticks to 96.320, just above its lowest since June.
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