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Australia, NZ dlrs Try to Rally, Lockdowns Make it Hard

SYDNEY, July 22 (Reuters) - The Australian and New Zealand dollars were trying to sustain a rally on Thursday as global sentiment improved a little, though the mounting economic impact of lockdowns in Australia meant risks remained to the downside.

The Aussie bounced to $0.7350, having hit an eight-month trough of $0.7290 overnight. It needs to get above resistance at $0.7410 to break the current downtrend, which has now been running for five weeks.

The kiwi dollar was hanging on at $0.6950, after also touching an eight-month low at $0.6882. Support lies at $0.6920 with resistance around $0.6980 and $0.7050.

A rebound in world stock markets helped lessen the pressure on risk currencies, and the Aussie got some help from data showing Australia boasted a record goods surplus in June.

The preliminary trade figures showed goods exports jumped 8% in June to deliver a surplus of A$13.3 billion ($9.78 billion), with iron ore surging on strong Chinese demand.

However, the domestic economic outlook has taken a body blow from spreading coronavirus infections in Sydney which look certain to keep the city locked down into August.

“With cases of local community transmission continuing at uncomfortable levels, and amid a low rate of vaccination, the possibility of further lockdown-extensions appears very real,” Nomura economist Andrew Ticehurst said.

He estimated the lockdowns could see gross domestic product shrink by a steep 1% this quarter.

Unlike many other economists, he felt the Reserve Bank of Australia (RBA) would stick with its plan to taper bond buying by a billion dollars to A$4 billion a week in September.

“Unwinding QE without causing a ‘taper tantrum’ can be challenging, and the RBA has managed a first step, and with AUD lower, to boot,” he said. “We think it would be unwise to walk this back, despite the deterioration in ´╗┐the COVID-19 situation.”

The market, however, is wagering the central bank will reverse course on tapering, and likely sound even more dovish at its policy meeting on Aug. 3.

Yields on three-year bonds have fallen back to 0.26% from a top of 0.49% just a month ago, while the market has lengthened the odds on a rate hike next year.

Ten-year bond yields have dropped all the way to 1.20%, from a peak of 1.67% last month. That took them to 8 basis points below U.S. yields, from as much as 13 basis points above earlier in July, and added to pressure on the Aussie.

(Editing by Himani Sarkar)

Source: Reuters

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