By Naomi Tajitsu and Wayne Cole
SYDNEY/WELLINGTON, July 8 (Reuters) - The Australian and New Zealand dollars were slowly giving ground to a strong U.S. dollar on Monday as market talk of tapering by the Federal Reserve pushed Treasury yields sharply higher.
The Aussie was under pressure at $0.9048, having shed a cent on Friday when U.S. jobs figures beat forecasts and reinforced speculation the Fed would begin scaling back stimulus as early as September.
In contrast, markets are still pricing in one more cut in rates from the Reserve Bank of Australia (RBA), though the further the Aussie falls the less the pressure there might be for a policy easing.
'We still expect the RBA to cut by a final 25 basis points over coming months, probably in August - but with the AUD lower, a further rise in the unemployment rate now looks likely to be a catalyst for further easing,' said Scott Haslem, an economist at UBS.
A break of recent three-year lows at 0.9036 would set the stage for a test of 90 cents.
Likewise, the kiwi was being hard pressed at $0.7712 and just above its recent trough of $0.7683. Support was building at $0.7683, a one-year low hit last month, given subsequent attempts to break below have been unsuccessful.
Dealers said domestic exporters were picking up the kiwi for hedging purposes around $0.7700, adding that many had held off from buying around the $0.7800 level in the past week or so.
'There's definitely a trepidation in the market over getting caught short especially at the bottom of the range,' said Sam Tuck, FX strategist at ANZ Bank. 'So there's not a lot of people who would be prepared to sell a big clip right now.'
Local bond prices tracked Treasuries lower, though they suffered relatively less. Australian three-year bond futures dropped 7 ticks to 97.070 while the 10-year bond contract fell 13 ticks to 96.040, though that was above last month's low of 96.190.
Yields on the cash 10-year bond were up 12 basis points at 3.96 percent but that compared to a 23 basis-point jump in Treasury yields on Friday, narrowing the spread between them to 121 basis points. Longer-dated yields on New Zealand government bonds were up as much as 13 basis points.
Still, the move in currencies was largely a reflection of U.S. dollar strength and both the Aussie and kiwi were edging up on the yen while holding steady on majors such as the euro. The Aussie inched ahead to 91.73 yen, while the kiwi reached 78.21 yen.
The Aussie drew some comfort in a continuing rally in spot iron ore prices to $122.60 a tonne. The steel making mineral is the country's single biggest export earner and a combination of rising prices and a falling Australian dollar is a huge windfall for local miners.
While the market has been worried about a possible waning in demand from China, the biggest buyer of iron ore, Australia has actually been shipping record amounts of it to the Asian giant. Australian exports to China hit an all-time high in May, and June looked to have been another strong month.
Yet, fears of a Chinese slowdown dominate market thinking and leave the Aussie vulnerable to any disappointment in coming Chinese data. Figures on loan growth, inflation and trade are due this week, with GDP out on July 15.
(Editing by Jacqueline Wong) Keywords: MARKETS AUSTRALIA NEWZEALAND/FOREX
(Wayne.Cole@thomsonreuters.com)(612 9373 1813)(Reuters Messaging: firstname.lastname@example.org)
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