The Australian and New Zealand dollars were subdued on Wednesday after the US dollar received a lift on speculation the US Federal Reserve may raise interest rates this year. The Australian dollar edged down to $0.7690, from a peak of $0.7750 set on Tuesday, a key resistance level that has rebuffed bulls three times in the past week.
Part of the weakness came after the influential head of the New York Federal Reserve said the Fed could raise interest rates as soon as September. Markets are now pricing in 55 percent chance of a Fed hike by the end of the year, up from 45 percent on Monday.
Australian two-year bonds now offer only 70 basis points more than their US counterpart, near the lowest premium since 2001. Still, the Aussie remains within reach of a three-month high of $0.7760 set last week and some dealers are bullish. The New Zealand dollar rose for the third day to reach $0.7294, helped by a jump in global dairy prices. New Zealand government bonds eased, sending yields 5 basis points higher at the long end of the curve.
Australian government bond futures dipped, with the three-year bond contract off 2 ticks at 98.620. The 10-year contract shed 3 ticks to 98.0800, while the 20-year contract lost 3.5 ticks to 97.5400. "Trading Aussie from the short side has been an exercise in futility of late, even in the face of bearish setups," Stephen Innes, senior currency trader at FX at OANDA Australia and Asia Pacific.
Notably, the Aussie has rallied two cents since the Reserve Bank of Australia (RBA) cut interest rates to record lows early this month. The Aussie came off highs against the pound at A$1.6965 after higher-than-expected UK inflation data. Sterling had hit its lowest in nearly three years at A$1.6701 with investors awaiting British employment data due later in the session and jobs figures in Australia on Thursday.