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SYDNEY: The Australian and New Zealand dollars climbed to one-week highs on Tuesday after dovish comments from Federal Reserve officials led markets to pare back rate increase bets, while bonds extended their rally for four straight sessions.

The Aussie rose 0.2% to $0.6421, after rebounding 0.4% overnight to stand above 64 cents. It managed to hold above the 14-day and 21-day moving averages but faces resistance at about $0.6460.

The kiwi dollar was up 0.3% to $0.6038, having also rallied 0.5% to break the 60 cents, a key resistance level. Bulls are eyeing $0.6049, a two-month high.

Australia, NZ dollars in holding pattern ahead of US payrolls data

Overnight, top ranking Federal Reserve officials indicated rising yields on long-term U.S. Treasury bonds, which directly influence financing costs for households and businesses, could steer the Fed from further increases in its short-term policy rate.

Futures moved to price in just a 11% chance of a rate rise at Fed’s next policy meeting in November, down from 27% a day ago, according to the CME FedWatch tool.

Receding concerns about the conflict in the Middle East, which spurred some safe-haven demand on Monday, helped risk assets as well.

“It’s pretty early days to assess the meaningful impact of what’s happening in the Middle East and what it actually means for markets,” said Kerry Craig, a global market strategist at J.P. Morgan Asset Management.

Locally, markets are closely watching whether Reserve Bank of Australia Assistant Governor Christopher Kent will update the bank’s view on Quantitative Tightening (QT) on Wednesday in a speech titled “Channels of Transmission”.

The RBA in May has raised the possibility that the bank would review its approach of holding bonds to maturity, leading to market speculation it might sell some of its holdings early.

This would be viewed as a somewhat more aggressive form of QT and could put upward pressure on bond yields.

Other central banks have undertaken QT with little obvious impact on bond markets or their economies. However, selling bonds when yields are near 10-year highs means the RBA would realise heavier losses on the debt.

Data showed on Tuesday that Australian businesses proved resilient in September, while cost pressures cooled in a welcome sign for the broader inflation outlook. Consumers remained depressed amid the persistent cost of living pressures.

Tracking Fed pricing, markets moved back to price in that the RBA is largely done with its tightening, with a 38% probability of a rate increase early next year.

Australian 10-year bond yields fell 8 basis points to 4.444%.

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