Australia, NZ dollars get lift on hints of US-China trade thaw

By Wayne Cole

SYDNEY, Oct 27 (Reuters) - The Australian and New Zealand dollars hopped to two-week highs on Monday as signs of progress in U.S.-China trade talks boosted risk sentiment globally, while giving bonds a mild knock.

The Antipodeans have open economies heavily dependent on exports to China and investors often use the currencies as liquid hedges against trade disruptions and risk in general.

The Aussie is also used as a proxy for the Chinese yuan, so it got an added lift when Beijing set the strongest fix for its currency in more than a year.

The Aussie gained 0.3% to $0.6536 AUD=D3, having been as high as $0.6545 at one stage. Support lies at a recent trough of $0.6438, with resistance at $0.6628.

The kiwi dollar was up 0.2% at $0.5758 NZD=D3, after having got as far as $0.5794. That took it away from a recent six-month low at $0.5684, but it remains short of October's top of $0.5844.

Australian 10-year bond yields AU10YT=RR nudged up 3 basis points to 4.171% as markets tense for a crucial reading on third-quarter consumer prices due on Wednesday.

Median forecasts are for a 0.8% rise in the trimmed mean measure of core inflation, which would leave the annual pace stuck at 2.7% when the Reserve Bank of Australia had hoped for a dip to 2.6%.

Analysts assume such an outcome would make a November rate cut a line-ball call, while anything higher would likely be a roadblock to an easing. Markets imply around a 60% chance of a cut, making them very vulnerable to a hot number.

"Our trimmed mean estimate is 0.846%," said Justin Smirk, a senior economist at Westpac. "Given there is some upside risk to dwelling prices, this suggests any risk to this estimate lies to the upside."

Of the major local banks, ANZ, CBA and NAB all expect rates to stay on hold next week, while Westpac is on the fence awaiting the CPI numbers.

RBA Governor Michele Bullock appears at an economics dinner later on Monday and there no doubt will be queries on the chances, though she usually steers away from offering forward guidance.

The head of the Reserve Bank of New Zealand speaks on Wednesday and has been happy to leave the door open to further cuts, having slashed rates by an outsized 50 basis points earlier this month.