Australia, NZ dollars looking vulnerable after bearish week

By Wayne Cole

SYDNEY, Sept 17 (Reuters) - The Australian and New Zealand dollars were carrying losses for the week on Friday after repeated failures to breach resistance left the market in a bearish mood.

The Aussie was down 0.9% for the week at $0.7289 AUD=D3 , having touched a three-week low at $0.7274 overnight. The next major support level is $0.7222, while resistance lies at $0.7348 and $0.7408.

The kiwi dollar was off 0.8% for the week at $0.7070 NZD=D3 , having repeatedly failed to clear resistance in the $0.7140/50 area despite a run of strong economic news. Immediate support comes in at $0.7060 and $0.7020.

Both currencies have suffered as worries about China's economy weighed on risk sentiment and commodity prices. Beijing has added to the pressure by clamping down on major emitters and lowering output caps for steel makers.

As a result, iron ore prices have plunged by more than half since peaking in May, delivering a body blow to Australian mining profits, dividends and tax receipts. The ore is Australia's single biggest export earner.

The setback came as domestic data confirmed that coronavirus lockdowns had caused a steep fall in employment in August which is likely to delay progress on wages and inflation.

The Reserve Bank of Australia (RBA) this week reiterated that it was unlikely to hike interest rates until 2024 given the slow growth in wages, while markets are wagering on a move from the Federal Reserve in late 2022.

"The RBA was in no mood to do the A$ any favours this week," said Westpac forex analyst Sean Callow. "If, as the RBA believes, the cash rate is still 0.1% in late 2023, it probably won't have much company in the G10 outside the ECB and BoJ."

"Risks remain for an AUD test of $0.7200/50."

Australian 10-year bond yields AU10YT=RR were pulled higher for the week by Treasuries, but at 1.298% are still 4 basis points below their U.S. counterparts.

New Zealand's 10-year yields NZ10YT=RR are up at 1.898%, putting them 55 basis points above Treasuries, reflecting expectations the Reserve Bank of New Zealand will raise interest rates next month. RBNZWATCH

The divergence on rate outlooks has seen the Aussie fall steadily against the kiwi for much of the past three months to reach its lowest since April last year at NZ$1.0294 AUDNZD= . "AUDNZD continues to be a one way bet," said Mazen Issa, a senior FX strategist at TD Securities. "We think the cross is nearing pricing in peak macro and policy divergence, but a bounce may not come until we know if the RBNZ decides to hike by 25 or 50 basis points."
Reporting by Wayne Cole; Editing by Christopher Cushing

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