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SYDNEY: The Australian and New Zealand dollars were on the defensive on Wednesday as a sell off on Wall Street hammered risk-sensitive currencies, while a weak reading on the domestic economy provided another reason to sell.

Adding to the pressure was weakness in commodity prices led by a near 5% dive in oil overnight, while iron ore futures suffered their largest one-day slide in almost two years.

The Aussie was struggling at $0.6698, having shed 1.2% on Tuesday to threaten breaking through support at $0.6696.

A sustained break of the latter would risk a retracement to the 200-day moving average at $0.6616.

It was hit particularly hard by a rebound in the safe-haven Japanese yen, which saw the Aussie dive 2.2% to 97.51.

The kiwi dollar was pinned at $0.6180, after falling 0.8% the previous session.

Support lies at $0.6168 and $0.6129. Australian data showed the economy grew a slim 0.2% in the June quarter, missing forecasts of a 0.3% rise, as household consumption took a rare dip.

Annual growth slowed to just 1.0%, and would have been zero without a lift from strong government spending.

Australia, NZ dollars slip after bumper August, outlook uncertain

The sub par result suggests annual growth will likely undershoot the Reserve Bank of Australia’s (RBA) forecast of 1.7% for the December quarter, reinforcing the case for a cut in interest rates.

“This is perhaps the clearest indication yet that policy is restrictive enough in Australia,” said Krishna Bhimavarapu, APAC economist at State Street Global Advisors.

“This data should at the very least lead the RBA to make a dovish pivot, considering how uncertain they were during the last meeting,” he added.

“We still look for the first rate cut in November as headline CPI could ease to around 3% in Q3.”

Markets are pricing in a 43% chance the RBA will cut by a quarter point in November, and a 90% probability of a move in December.

They imply just 23 basis points of easing this year, compared to 103 basis points in the United States.

Investors are certain the Reserve Bank of New Zealand (RBNZ) will ease at its next meeting in October, with a 37% chance the cut will be an outsized 50 basis points.

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