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SYDNEY: The Australian and New Zealand dollars rebounded on Tuesday as risk appetite recovered somewhat from the hit caused by COVID protests in China, although the upward momentum could peter out ahead of a speech by Federal Reserve Chair Powell.

The Aussie - a liquid proxy for the Chinese yuan - rose 0.7% to $0.6704, after tumbling 1.5% overnight to as low as $0.6642.

Resistance is at around 68 cents and it has support around 66 cents.

The kiwi dollar also gained 0.7% to $0.6204, having also lost 1.4% overnight to as far as $0.6156.

Risk sentiment improved, as Chinese stocks rallied by almost 3% while the offshore yuan gained 0.7%, reversing losses from the previous session.

China’s health authorities will hold a press conference at 3 p.m. local time (0700 GMT) on Tuesday about COVID prevention measures, which could fuel optimism that some tweaks to COVID curbs may be on the way.

China’s securities regulator on Monday lifted a ban on equity refinancing for listed property firms, in the latest support measure for the embattled real estate sector, sending property shares sharply higher.

Australia, NZ dollars hammered as China’s COVID protests grow

“Recent experience suggests AUD may again look through the negative COVID situation in China and recover its losses,” said Carol Kong, a currency strategist at CBA.

“However, there is a risk stronger US economic data or a hawkish speech by FOMC chair Powell pushes the USD up and pulls the AUD down this week.”

Traders are looking to the comments from Fed Chair Jerome Powell on Wednesday for any new signals on further tightening.

Sentiment also soured when Richmond Fed President Thomas Barkin became the latest official to douse speculation the central bank would reverse course on interest rates relatively quickly next year.

The Fed is expected to hike rates by an additional 50 basis points when it meets on Dec. 13-14. Australian government bond yields rose slightly.

Yields on 10-year bonds edged 5 basis points higher to 3.598%, leaving the spread over the Treasuries at minus 11 basis points.

Yields on three-year bonds rose 2 bps to 3.245%.

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