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SYDNEY: The Australian and New Zealand dollars flatlined on Wednesday after Chinese inflation data proved too mixed to provide much short-term direction, though they did underline the softness of demand in the Asian giant.

The Aussie held at $0.6545, having bounced from a two-month trough of $0.6497 overnight.

A bearish technical picture suggests risks are for a test of its May low of $0.6459, and it needs to clear $0.6610 resistance to find firmer footing.

The kiwi dollar hovered at $0.6060, after also touching a two-month low of $0.6035 overnight.

Major resistance is up around $0.6134, with its May nadir at $0.5986.

Chinese data showed consumer prices fell 0.3% in July from a year earlier, but that was slightly above forecasts as the monthly CPI unexpectedly rose 0.2% from June.

Producer prices went the other way and dropped 4.4%, when analysts had looked for a fall of 4.1%.

That followed dismal trade figures on Tuesday which added to the case for more meaningful policy stimulus.

Sluggish growth in China is viewed as a negative for the Aussie given China is by far Australia’s single biggest export market and a major buyer of its commodities.

On the other hand, China exporting disinflation is putting downward pressure on goods prices in Australia and is much needed to help counter rising business costs.

Australia, NZ dollars under pressure as yuan skids, China trade weighs

Markets are wagering inflation will moderate enough for the Reserve Bank of Australia (RBA) to keep rates at 4.1%, following pauses in July and August.

Futures imply around a 40% chance of one more hike by December, and look for rate cuts to start around August next year.

“The RBA has given the impression that the bar for another hike near term is quite high,” said Sean Callow, a senior currency strategist at Westpac.

“Notably, the RBA board now believes that recent data is consistent with achieving the inflation target - a confident assessment few central bankers have been prepared to codify in their policy statements.”

The governor and deputy governor of the RBA will provide an update on the policy outlook when they appear before lawmakers on Friday.

The Reserve Bank of New Zealand (RBNZ) holds its next policy meeting on Aug. 16 and markets imply a 95% chance rates will stay at 5.5% given the weakness of domestic demand.

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