SYDNEY/WELLINGTON (Reuters) - The Australian and New Zealand dollars were stuck at two-week lows on Wednesday after markets priced in the risk of faster rate hikes in the United States, sending Treasury yields and the U.S. currency higher.
The Aussie dollar <AUD=D4> was steady for the moment at $0.7791, having shed 0.8 percent overnight. The lapse threatened its February trough at $0.7759 where a break would return it to territory last trod in December.
The pullback came after Federal Reserve Chairman Jerome Powell said he had become more confident about the economy and the upward path of inflation.
That fuelled speculation Fed members would lift their projections, or "dot" plots, for interest rates this year when they next meet in March.
"Based on his Q&A responses, more investors suspect that odds for the Fed's median dot to shift from three towards four in March are now higher than a shift from three to two," analysts at Citi wrote in a note.
The futures market <0#FF:> is now almost fully priced for three hikes by December. That would take U.S. cash rates well above those in Australia, a divergence that has not existed since 2000.
The Aussie also took a glancing blow when a survey showed activity in China's manufacturing sector slowed sharply in February, more than expected. Lunar New Year holidays and tougher pollution rules were blamed for curtailing output.
The New Zealand dollar <NZD=D4> was also pinned at $0.7229, having lost 0.9 percent overnight in the wake of Powell's upbeat comments.
It took a further blow when a domestic survey showed business confidence remained soft in February.
Data on the country's terms of trade data are due out on Thursday and pose another risk to the kiwi.
Analysts polled by Reuters were on average expecting a 0.2 percent drop in the fourth-quarter terms of trade on waning prices for the country's main goods export, dairy.
New Zealand government bonds <0#NZTSY=> eased, sending yields 2.5 basis points higher at the long end of the curve.
Australian government bond futures followed Treasuries lower, with the three-year bond contract <YTTc1> off 4.5 ticks at 97.890. The 10-year contract <YTCc1> eased 4.5 ticks to 97.2100.
(Editing by Gopakumar Warrier)
