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Australia, NZ dlrs hold gains; domestic data not so dire

Credit: REUTERS/DANIEL MUNOZ

The Australian and New Zealand dollars held on to recent gains on Thursday as domestic economic data proved to be not as dire as first feared and investors wagered U.S. monetary policy was about to take an even more dovish shift.

By Wayne Cole

SYDNEY, Aug 27 (Reuters) - The Australian and New Zealand dollars held on to recent gains on Thursday as domestic economic data proved to be not as dire as first feared and investors wagered U.S. monetary policy was about to take an even more dovish shift.

Speculation is rife Federal Reserve Chair Jerome Powell will use a speech later Thursday to signal the central bank will soften its inflation target to allow policy to stay super-easy for longer, a potential drag on the U.S. dollar.

The Aussie inched up to $0.7238 AUD=D3 having risen for three days in a row and away from support in the $0.7136/50 zone. Major resistance lies at the August peak of $0.7275 and a break could spark a burst of buying from momentum funds.

The kiwi dollar was firm at $0.6626 NZD=D3, after jumping 1.1% overnight, but faces resistance at $0.6655.

Australian data showed business investment dropped 5.9% in the second quarter as coronavirus lockdowns hit demand, though that was a lot better than the forecast of a 8.4% fall.

Firms did scale back future spending plans, but again by not nearly as much as expected, thanks in part to the mining sector which is benefiting from strong Chinese demand.

"The upshot is that the outlook for capital spending isn't as gloomy as one would expect in the current environment," said Marcel Thieliant, an economist at Capital Economics.

He now estimated gross domestic product likely fell by around 4.5% in the June quarter, from the previous quarter, up from a previous forecast of 6.5%. The GDP data is due next week.

Investor confidence in Australian assets was underlined by details of the government's huge A$21 billion ($15.20 billion)bond sale on Wednesday, which drew A$66 billion of bids.

Some 46% of the record offer went to foreign investors, mostly in Asia ex-Japan, the U.S. and UK. Fund managers bought almost 31% of the issue and hedge funds another 20%.

Futures for 10-year bonds YTCc1 added five ticks on Thursday to 99.0800, implying an yield of 0.92%. The three-year bond contract YTTc1 was a fraction firmer at 99.690.

($1 = 1.3820 Australian dollars)

(Reporting by Wayne Cole; Editing by Shailesh Kuber)

((Wayne.Cole@thomsonreuters.com; 612 9171 7144; Reuters Messaging: wayne.cole.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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