SYDNEY (Reuters) - The Australian dollar wallowed near six-week lows as the greenback jumped and Treasury yields climbed on wagers a proposed cut in U.S. tax rates could boost economic growth and inflation.
The Australian dollar <AUD=D4> held at $0.7846, after going as low as $0.7836 overnight, a level not seen since mid-August. For the week so far, the Aussie has fallen 1.3 percent and was on track for its worst performance since early April.
The declines have largely been led by advances in the U.S. dollar as the market was almost convinced of a December rate rise by the Federal Reserve. Two-year Treasury yields have climbed to their highest since 2008.
President Donald Trump's tax reform plan on Wednesday also gave markets something to cheer about, although economists believe the proposal - short on detail - will face major hurdles in Congress which sits for barely 30 days in 2017.
"Both the U.S. dollar and U.S. fixed income yields will be pressured higher near-term amid heightened hopes for tax cuts," Westpac economist Richard Franulovich said in a note.
"But, as negotiations intensify in coming weeks significant procedural, fiscal and political constraints are likely to become more apparent. Given the obstacles the final package is likely to be smaller than today's plan."
The Aussie, which had been on an upward trend since the start of this year, has recently run out of gas. It is down more than 1 percent in September, on top of a 0.7 percent fall in August.
A decline in commodity prices has also weighed on the Aussie. Iron ore <DCIOcv1>, Australia's single biggest export earner, has fallen off a cliff this month while copper <CMCU3> is off a three-year peak.
The New Zealand dollar <NZD=D4> briefly eased to $0.7199 after the country's central bank left policy rates unchanged in a widely expected move and noted a lower currency would "help deliver more balance growth."
The kiwi has fallen almost 2 percent since the Reserve Bank of New Zealand's (RBNZ) last policy meeting on Aug. 10 when it said a lower exchange rate "was needed."
The RBNZ also hinted at a downgrade in its economic growth projections amid heightened political uncertainty.
The kiwi still managed a modest bounce, adding 0.3 percent to $0.7226 and away from a three-week trough of $0.7169.
"Our bias is still that the next rate move will be a hike, probably from late next year, a view very conditional on wages picking up, the NZD falling and fiscal policy being more expansionary," ANZ said in a note to clients.
New Zealand government bonds <0#NZTSY=> eased, sending yields about 1 basis points higher at the long-end and 2 basis points at the short-end.
Australian government bond futures slipped too, with the three-year bond contract <YTTc1> down 2 ticks at 97.810. The 10-year contract <YTCc1> edged 4.5 ticks lower to 97.1400.
(Editing by Shri Navaratnam)
