Aussie, NZ$ undermined by global growth concerns

SYDNEY/WELLINGTON, July 19 (Reuters) - The Australian and New Zealand dollars were on the defensive on Monday as the market underwent one of its periodic bouts of risk aversion, though losses were pared when Asian shares fared better than feared.

The Australian dollar was down around $0.8676, compared with Friday's late local level of $0.8765, taking a late knock from news Moody's had downgraded Ireland.

It traded as low as $0.8633 and, after last week's failure at $0.8890 resistance, a daily close under $0.8575 would risk a retest of $0.8322, said analysts.

The NZ dollar steadied about $0.7067/77, having skidded from $0.7200 on Friday. Short term resistance for the kiwi is noted at $0.7150 while support is noted about $0.6970.

Both currencies fell sharply on Friday when worries about the U.S. economy dragged Wall Street sharply lower. The Aussie was also hampered by concerns about a slowdown in China, even though growth there ran at a speedy 10.3 percent in the second quarter.

'While the market reaction to the latest batch of weaker Chinese growth data was overdone, the slowdown has been weighing on iron ore prices, providing headwinds for the A$,' noted John Kyriakopoulos, a currency strategist at National Australia Bank.

The spot price for iron ore, one of Australia's biggest exports, had fallen 18 percent in the past three weeks.

'We expect China to have a soft landing, but this won't be confirmed until around the fourth quarter, so the spot iron ore price is unlikely to recover much until then.'

For Australia the week's main event will be minutes from the Reserve Bank of Australia's (RBA) July policy meeting and a speech by RBA Governor Glenn Stevens on Tuesday.

Investors will be trawling for hints on the risk of a rate rise in August, which is currently priced at just a 14 percent chance.

The market showed scant reaction to news over the weekend that Australia's Prime Minister, Julia Gillard, had called an election for August 21.

There is little to separate the main parties on economic policy given they are fiscally conservative and interest rates are set by a very independent central bank.

There was some talk that the RBA might be more reluctant to hike at its August 3 policy meeting since it would now be during the election campaign. However, the central bank did lift rates during the previous campaign and Governor Stevens has long made it clear that they would always act if it was necessary.

Aiding the Aussie at the margin was news private U.S. equity firms TPG and Carlyle had won a bidding war for Australia's Healthscope, agreeing to pay $1.73 billion for the hospital owner in the nation's largest buyout deal since 2007.



LESS TIGHTENING

'The NZ dollar is expected to suffer from deteriorating global risk sentiment, in part due to disappointing U.S. data,' Westpac Senior Market Strategist Imre Speizer said in a note to clients, adding a fall towards $0.68 in the next week is likely.

The week ahead sees mostly second tier figures due, with June migration and credit card spending on Wednesday, and the ANZ-Roy Morgan consumer confidence survey on Thursday.

Last week saw a continuation of the recent theme of weak New Zealand data, with May retail sales, June housing sales and second quarter inflation all pointing to a patchy economy.
While the market is still firm in pricing in a hike at the July 29 meeting, the Reserve Bank of New Zealand is seen increasingly likely to pause in its rate rise cycle before the end of the year.

Markets are now pricing in 116 basis points of tightening over the next year, down from 134 a week ago and
215 points in early May before global fears of a 'double
dip' recession emerged.

The Aussie eased slightly to NZ$1.2264, while the kiwi backed up Friday's losses with further falls against the yen and euro.

NZ government debt prices firmed, sending yields down as much as two basis points. Australian bond futures were flat to firmer. Three-year futures added 0.02 points to
95.38 while the 10
year contract was flat at 94.880.

(Reporting by Adrian Bathgate and Wayne Cole)
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