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SYDNEY: The Australian and New Zealand dollars gave up gains on Thursday as the US Federal Reserve stiffened its hawkish guidance after leaving rates unchanged, while local bonds took a beating as markets rushed to price in prospects of more hikes Down Under.

The Aussie fell 0.6% to a one-week low of $0.6408, after scaling a three-week top of $0.6510 overnight just before the Fed’s rate decision. It has support around $0.6358, while resistance is strong at $0.6522.

The kiwi dollar slipped 0.3% to $0.5908, having also retreated from a three-week high of $0.5999 hit overnight.

It has support around $0.5860, but resistance is heavy around $0.5940.

The Fed held interest rates steady on Wednesday but stiffened a hawkish monetary policy stance as policymakers halved projected rate cuts next year to just two on the back of strong economic growth.

“This is very high for longer, and not what markets were anticipating,” said David Chao, global market strategist, Asia Pacific ex-Japan at Invesco.

“Once markets have clarity on the end of the Fed rate hike cycle and begin to discount a sustainable recovery, we would expect a growing global risk appetite.”

The US dollar hit a fresh six-month high against its peers and Treasury yields spiked to the highest since 2006, followed by selling in the global bond market.

Short-term Australian yields jumped to more than two-month highs, with the three-year government bond yield surging 9 basis points to 4.057%.

The spread between Australian and US 10-year sovereign bond yields has moved materially into negative territory this month, weighing on the Aussie.

Also attesting to the resilience of the world economies, New Zealand’s grew more than expected in the second quarter.

The statistics bureau also revised up the first-quarter figure to be flat, meaning the economy was never in a technical recession.

Two-year swap New Zealand benchmark rates jumped 12 basis points to 5.745% on Thursday, the highest since 2008.

Markets also moved to fully price in one rate hike from the Reserve Bank of Australia by May next year and no rate cuts at all throughout 2024.

That compared with about a split chance of one final hike before the Fed decision.

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