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SYDNEY: The Australian and New Zealand dollars flatlined on Monday as markets priced in ever more aggressive rate rises in the United States, while economic news from China was too mixed to offer much support.

The Aussie was holding at $0.7210, having slid 0.9% on Friday as US yields hit one-year highs. The failure to hold a two-month top of $0.7314 soured the technical outlook again and risked a pullback to $0.7130.

The kiwi dollar stood at $0.6798, after losing 0.8% on Friday. It also failed to hold a seven-week peak of $0.6890 which put the focus on support at $0.6733.

Data out of China showed coronavirus restrictions badly hurt retail sales in December, though industrial output fared better and the economy overall grew a bit faster than forecast in the fourth quarter.

Australia, NZ dollars look to break higher as US$ retreats

Beijing responded with a surprise easing in monetary policy which could help support activity in what is Australia's single biggest export market. Analysts expect more policy rate cuts in the months to come.

More bearish for the Aussie was a rapid shift higher in market expectations for US interest rates as futures now almost fully priced for a hike in March and rates of 1.0% by year end.

That sent Treasury yields spiralling higher and punished Australian bonds, where 10-year futures skidded 7 ticks to its lowest since early November at 98.040.

Investors are wagering the sharp hawkish shift by the Federal Reserve will put pressure on the Reserve Bank of Australia (RBA) to follow and tighten well before its proffered window of 2023.

A first hike to 0.25% is priced in by June, with a better than 50-50 chance of a move in May, while rates are seen topping 1.0% by the end of the year. "With the Fed's December meeting just over a week away and a likely hawkish outcome, it's hard to see the US$ giving too much more ground," said Richard Franulovich, Westpac's head of FX strategy.

"We are not convinced that now is the time for a serious break higher in the AUD and see it at risk of probing into the $0.7100/50 region through the week."

The key domestic event this week will be jobs data on Thursday where analysts expect a solid rise of 30,000 in December, following November's record 366,100 gain.

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