SYDNEY/WELLINGTON (Reuters) - The Australian dollar hit a two-month trough on Thursday, undermined by mixed domestic data and speculative selling against the yen that took the cross rate to a nine-month low.
The Aussie <AUD=D4> was down 0.5 percent at $0.7724, leaving its losses for the week at 1.5 percent, as the U.S. dollar benefited from talk of faster Federal Reserve rate hikes.
Much of the move was driven by a broad surge in the yen, where investors were being forced to close short positions in the Japanese currency.
The Aussie lost another 0.6 percent on Thursday to 82.30 yen <AUDJPY=R>, having already shed 0.9 percent overnight. Bears were now eyeing last year's twin bottoms at 81.69 and 81.43.
The currency also took a knock when data on Australian business investment showed a 0.2 percent dip for the December quarter, missing forecasts for a 0.9 percent increase.
The detail of the report, however, was much firmer with the third quarter revised up sharply and strong spending on plant and machinery adding to economic growth.
"The outlook for capital spending remains positive, with a solid non-mining investment pipeline and a reducing drag from the mining investment decline," said ANZ Senior Economist
Felicity Emmett.
That gels with the Reserve Bank of Australia's (RBA) own outlook and thus did little to change market pricing on interest rates. Futures <0#YIB:> currently imply around a 50-50 chance of a hike by December and a move to 1.75 percent is not fully priced in until April next year.
There was some mild relief when a survey of Chinese manufacturing surprised by showing a pick up in activity in February, countering worries growth had stalled.
The Caixin/Markit Purchasing Manager's Index (PMI) edged up to 51.6 last month, from 51.5 in January.
Across the Tasman Sea, the New Zealand dollar <NZD=D4> sank to a three-week low, no match for the greenback's extended gains after an upbeat Federal Reserve speech earlier in the week.
Even data for New Zealand terms of trade, which outpaced analyst expectations to hit an all-time high in the fourth quarter, could not spark a revival in the kiwi.
The currency edged down 0.3 percent to $0.71910, near its lowest since Feb. 9.
"An easing bias for the NZD remains...USD direction remains firmly in the driver's seat and it retained a firm tone overnight," said Con Williams, economist at ANZ bank, adding that the currency would find technical support around $0.7180.
Australian government bond futures edged higher in line with U.S. Treasuries, with the three-year bond contract <YTTc1> up 1.5 ticks at 97.905. The 10-year contract <YTCc1> added 4 ticks to 97.2450 as the yield curve flattened.
(Reporting by Wayne Cole and Charlotte Greenfield; Editing by Eric Meijer)
