Australian dollar reverses past rally, kiwi flat

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Australian dollar reverses past rally, kiwi flat

An Australian one dollar coin can be seen amongst various other Australian coins at a store in Sydney, Australia.

SYDNEY Reuters -- The Australian dollar reversed a recent rally on Thursday after rising fears of a U.S. recession and soft local jobs data knocked down the risk-sensitive currency, while the kiwi was little changed by the resignation of Prime Minister Jacinda Ardern.

After hitting a five-month high of $0.7064 just one session before, the Aussie was able to drop 0.4% to 0.6910%, the lowest level in a single week. It now faces resistance at around 70 cents and has support at the 14 day moving average of $0.6889.

The kiwi was a 0.2% drop to $0.6428 after touching a seven-month high of $0.6530. It has support at $0.6360 and did not react much to the news that Prime Minister Jacinda Ardern will step down next month.

Retail sales fell by the most in a year in December and manufacturing output recorded its biggest drop in nearly two years, fuelling fears of a recession in the world's largest economy.

After the Fed funds rate peaked at 4.85% by June, investors returned to the safe-haven dollar and bonds, with futures markets pricing in rate cuts from the Federal ReserveFederal Reserve by the end of the year.

The Fed is expected to slow down its rate hike in February to 25 basis points as inflation eases, after downshifting the size of increases just in December.

A slew of policymakers signaled that they would push on with more interest rate hikes, with several supporting a top policy rate of at least 5%.

Local data on Thursday showing Australia's employment unexpectedly fell in December added to the risk-off mood and weighed on the Aussie.

Three-year bond futures shot up by 20 ticks to 97 to imply a yield of 3.0%. It was last traded at 94.97.

Local government bond yields extended the global declines. The yield on 10 year bonds fell 4 basis points to 3.404%, the lowest since December, while the yield on three-year notes fell 9 basis points to 3.005%.

The Reserve Bank of Australia will be able to raise interest rates in February, but there is a 40% chance that the RBA will pause due to the fact that rates have climbed by 300 basis points since May.