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SYDNEY: The Australian and New Zealand dollars were hammered on Monday after China reaffirmed its zero-COVID policy, giving back some of the recent enormous gains on hopes Beijing will loosen anti-pandemic restrictions and help reignite global growth.

The Aussie fell as much as 1% but seemed to have found support above 64 cents and last hovered at $0.6436.

It surged 2.9% - the biggest climb in a decade - on Friday, along with other risk assets, amid swirling rumours China was considering changing its zero-COVID strategy.

However, Chinese health authorities on Saturday reiterated their “unwavering” support to the zero-COVID policy, disappointing some investors who were hoping for a quick reopening.

Australia, NZ dollars enjoy respite in risk-on rally, bonds sell-off on hot inflation

The kiwi eased 0.6% to $0.5896, after soaring 2.7% on Friday.

It has support at around $0.5866. “AUD can erase Friday’s gains and ease back below 0.6300 because of China’s commitment to its zero COVID policy and a firmer USD,” said Carol Kong, a currency strategist at CBA.

On Friday, the US nonfarm payrolls report showed signs of a slowdown in the hot labour market with a higher unemployment rate and lower wage inflation, adding to evidence that the Federal Reverse may start scaling back the size of their rate hikes next month.

“But slowing the pace of interest rate hikes does not necessarily mean interest rates will peak and be cut soon,” said Kong from CBA.

“In our view, the risk is the Funds rate peaks at a higher level or remains high for longer than we forecast.

Such a scenario may widen the US’s interest rate advantage with other economies and a deeper recession than we expect – an upside risk to our USD forecasts.“

Australian 10-year yields remained a chunky 25 basis points below those on Treasuries, as markets priced in a peak for US rates up around 5.0-5.25% and well above what was expected Down Under at around 4%.

The Reserve Bank of Australia stuck with a modest rate hike this month and highlighted its relatively dovish stance in a quarterly policy statement on Friday.

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