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SYDNEY: The Australian and New Zealand dollars were on the defensive on Thursday as markets further scaled back expectations of rate hikes at home, leaving them with a yield disadvantage against their U.S counterpart.

The Aussie huddled at $0.6533, having shed 1.1% overnight in a second straight session of steep losses.

The break of support at $0.6595 has turned the technical outlook bearish for a test of the May trough at $0.6459.

The kiwi dollar eased to $0.6070, after also sliding 1.1% overnight.

Support lies around $0.6050, ahead of its May low of $0.5986.

Both currencies have been under fire since the Reserve Bank of Australia (RBA) decided not to hike interest rates at its August meeting on Tuesday, sparking speculation it was done tightening for this cycle.

Data out Thursday seemed to add to the case for an extended pause, as retail sales volumes fell for a third straight quarter in the worst losing streak since 2008.

A 1.4% drop in annual sales was the largest in the history of the series and all the weaker as population growth was running at an annualised 2.4%.

Markets now imply around a 50-50 chance of just one more rate hike to 4.35%, possibly in November following inflation figures for the third quarter.

Australia, NZ dollars rebound after falls; China helps

The dovish outlook for short-term rates has kept a lid on Australian 10-year bond yields at 4.06%, even as US yields have pushed steadily higher.

As a result, Australian bonds now pay 4 basis points less than Treasuries, having offered as much as 31 basis points more at one stage in July.

Over in New Zealand, data out on Wednesday showed strong demand for labour being met by a surge in migration, nudging the jobless rate up and lengthening the odds on another hike in rates from the Reserve Bank of New Zealand (RBNZ).

“From the RBNZ’s point of view, the better balanced work force, supply meeting demand, is less inflationary,” said Jarrod Kerr, chief economist at Kiwibank. “They should take some comfort in the improving outlook for both wage and price inflation,” he added.

“If we’re right, the next move will be a rate cut, early next year.”

Markets, however, imply little chance of a cut in the 5.5% cash rate until August next year.

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