SYDNEY/WELLINGTON: The Australian dollar flirted with a 4-1/2 year trough against a broadly firmer greenback on Tuesday while its New Zealand peer was steady in thin year-end trade.
Financial markets in Australia and New Zealand will close early on Wednesday and stay shut for the rest of the week for the Christmas holidays.
The Aussie last traded at $0.8123, having drifted in a slim $0.8117/32 range, not far from last week's low of $0.8107. A break there could open the way to the May 2010 trough of $0.8066.
The Aussie has shed close to 9 percent so far this year, dragged by falling global commodity prices and sub-par economic growth at home.
Of concern has been this year's 50 percent slide in the price of iron ore, Australia's top export.
The fall came at a time when mining investment was slowing sharply, while other parts of the economy remained stubbornly subdued. Debt futures implied a one-in-four chance of a cut to the 2.5 percent cash rate at the next central bank policy review in February and were fully priced for a quarter point easing by May.
The kiwi too has felt the heat from lower commodity prices, especially dairy, and signs that strong domestic growth has peaked. While it was little changed at $0.7733 on Tuesday, it was in sight of a 2-1/2 year low of $0.7660 touched earlier this month.
The kiwi has lost around 6 percent year to date, having relinquished gains made earlier in the year.
A pick-up in market volatility could push the currency to a new low. Data out on Tuesday showed the impact of the slide in dairy prices with exports of milk powder, butter and cheese down 27 percent on November last year.
"The most important question for the outlook moving into 2015 is the intensity of the headwind posed by lower dairy prices," said Ben Jarman, economist at JPMorgan.
"The RBNZ expect stabilization in spot prices in the new year - the next dairy auction on Jan 2 will be an early test of this view." Near-term technical support was seen around $0.7700, a level which has largely held since October.
New Zealand government bonds were little changed in quiet trade ahead of the Christmas holidays. Australian government bond futures were steady after Monday's rebound. The three-year bond contract was flat at 97.790, while the 10-year contract gained 2 ticks to 97.140.
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