Australia, NZ dollars lose ground as risk sentiment sours

By Wayne Cole

SYDNEY, June 12 (Reuters) - The Australian and New Zealand dollars were forced to give ground on Thursday as losses in equity markets soured risk sentiment, preventing them from making gains on a broadly weaker U.S. counterpart.

The Aussie dipped 0.2% to $0.6489 AUD=D3, having backed off a six-month top of $0.6546 hit overnight. That was just a whisker short of major resistance at $0.6550, where a break would be bullish for a further rise to $0.6687.

The kiwi dollar eased 0.1% to $0.6020 NZD=D3, after reaching $0.6066 overnight but stopping short of its recent peak at $0.6080. Support comes in around $0.5990, with a bull target at $0.6119.

The Aussie had less luck on the euro, which jumped 0.9% to A$1.7691 EURAUD= as it led the wide scale charge higher on the U.S. dollar. The single currency has been supported by European Central Bank policymakers indicating it was near done cutting interest rates.

Markets have just one more ECB easing priced in for this year, but three more for the Reserve Bank of Australia given a disappointing reading on first-quarter growth and signs of continued weakness in consumer spending.

Futures imply around an 80% chance the RBA will cut rates by a quarter point to 3.60% at its next meeting on July 8, and move to 3.10% by year-end. 0#AUDIRPR

"There are downside risks to both ours and the RBA's household consumption forecast for this quarter," noted Belinda Allen, an economist at CBA.

"The progression of consumer spending data will be a key focus for the RBA ahead of the July rate decision," she added. "The balance of probabilities continues to shift towards a July rate cut - our base case remains August."

Data due before the meeting include jobs, retail sales, household spending and consumer prices for May.

"We continue to expect RBA to hold in July and cut in August and November," said Luci Ellis, chief economist at Westpac.

"Looking forward, though, the arguments in favour of doing more than two more cuts are building," she added. "The outlook for inflation is shifting in the face of slowing population growth and a handover from public to private sector demand growth that is looking shakier."

As a result, Ellis now expected two more quarter point cuts in February and May next year, taking rates to 2.85%.