SYDNEY/WELLINGTON (Reuters) - The Australian and New Zealand dollars hovered near 1-1/2 week highs on Monday as planned Sino-U.S. trade talks spurred hopes that tensions between the giants may soon ease.
The Australian dollar <AUD=D4> was last at $0.7310, within striking distance of Friday's $0.7319 - the highest since Aug. 10. The Aussie gained 0.3 percent last week in spite of touching its weakest level since January 2017, at $0.7203, on Wednesday.
However, domestic politics could prove an overhang as a poll showed support for Prime Minister Malcolm Turnbull falling to its lowest since December, stoking speculation he could face a leadership challenge in his ruling centre-right coalition.
Australia has not had a prime minister complete a full three-year term in the past decade.
"If we had a leadership spill or if it looked like we were going for early elections that might weigh on the Aussie," said Greg McKenna, Sydney-based chief strategist at AxiTrader, adding either outcome looked unlikely at this stage.
Earlier in the day, Turnbull played down speculation of an imminent leadership challenge within his own party, saying he enjoyed the confidence of his cabinet and party room.
McKenna noted that for now, the Aussie was being driven by the U.S. dollar. The Aussie is often played as a liquid proxy for Chinese assets as well as world growth so its moves are generally dictated by major global events.
Indeed, the Aussie has been on a slippery slope this year amid escalating trade tensions between the United States and China and strains in emerging markets such as Turkey.
The Aussie and its New Zealand counterpart got a fillip late last week on news China and the United States will hold lower-level trade talks late this month.
The New Zealand dollar <NZD=D4> bounced off two-and-a-half year lows around $0.6540 touched the previous week to a ten-day high of $0.6642. It was last off 0.3 percent at $0.6616.
The kiwi ended last week up about 1 percent.
New Zealand government bonds <0#NZTSY=> gained, sending yields 3 basis points lower.
Australian government bond futures rose, with the three-year bond contract <YTTc1> up 1 tick at 97.985. The 10-year contract <YTCc1> climbed 1.5 ticks to 97.47.
(Editing by Richard Borsuk)
