SYDNEY/WELLINGTON: The Australian and New Zealand dollars fell to multi-week lows on Wednesday as the US dollar got a lift from growing expectations of an interest rate hike later this year.
The Australian dollar eased to its weakest in a month at $0.7726, after major support at around $0.7775 gave way. It slumped 1.2 percent on Tuesday, and now has lost more than four cents since mid-May. It last traded at $0.7742.
Upbeat US economic data gave investors an excuse to sell the Aussie, which had already been under pressure. The next major level of support was found at $0.7680, the 76.4 percent retracement of the $0.7534-$0.8164 rally.
Resistance was seen at $0.7800. The Aussie even lost some ground against an embattled euro , while it hovered near three-month lows versus the pound.
The New Zealand dollar plumbed a two-month trough of $0.7222, stung by a pick-up in risk aversion and growing speculation about an interest rate cut in the coming months. It was last at $0.7240.
Markets are primed for dairy co-operative Fonterra's farmgate payout forecast due later on Wednesday or on Thursday. A weak outcome could push the kiwi towards a four-year low of $0.7177.
Economists expect the world's largest dairy exporter to announce an opening forecast around NZ$5.00-NZ$5.25 per kilograms milk solids, an improvement on this year's NZ$4.50 payout but well below the long-term average around NZ$6.50.
The hit to incomes in the country's largest dairy export industry has added to the case for the Reserve Bank of New Zealand to ease policy.
"The risks would increase that we could see a rate cut in June... if Fonterra comes in around NZ$5.00 or lower," said Tim Kelleher, head of institutional FX sales at ASB bank in Auckland.
He added that such a scenario would trigger a test of $0.7177, a break of which would open the door to $0.6950, the 50 percent retracement of the kiwi's 2009-2011 rally. New Zealand government bonds rose, pushing yields as much as 2.5 basis points lower along the curve.
Australian government bond futures rose, with the three-year bond contract up 2 ticks at 97.950. The 10-year contract added 8 ticks to 97.1650, leading to a bullish flattening of the curve.
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