By Cecile Lefort and Gyles Beckford
SYDNEY/WELLINGTON, Aug 20 (Reuters) - The Australian and New Zealand dollars inched up on Thursday on broad U.S. dollar weakness, but a sharp fall in commodity prices and worries about China capped gains.
The Australian dollar AUD=D4 edged up to $0.7353, from a low of $0.7312 on Wednesday, but was still stuck in the narrow band of $0.7323 and $0.7409 of the past week. It touched a six-year low of $0.7217 last week.
The U.S. dollar took a hit overnight after minutes from the U.S. Federal Reserve's July meeting dented expectations for a rate hike as early as next month.
Yet, a 4 percent plunge in oil prices combined with tumbling Chinese stocks overshadowed much of the upside for the Aussie dollar.
Annette Beacher, chief Asia-Pacific macro strategist at TD Securities, said investors looked more focused on the Shanghai stock market than on the Fed's next move.
The market often uses the Aussie as a liquid proxy to hedge against weakness, or wager on strength, in China.
In the near term, however, Beacher said the Aussie dollar's fate was in the Fed's hands. "The Reserve Bank of Australia is certainly on hold and the Fed is wavering," Beacher said.
Investors are in two minds about whether the Fed will raise rates next month.
The New Zealand dollar NZD=D4 was holding firm around $0.6605 after a bumpy offshore session that saw it range between $0.6550 and $0.6624 as it was driven by risk aversion, soft commodities, and changing views of the Fed's minutes.
In the absence of any local drivers the kiwi was seen drifting modestly higher.
"We expect stronger interest to sell will emerge at 0.6660 and close to 0.6700, as investors remain keen to get long U.S. dollar on a medium-term basis," said BNZ strategist Raiko Shareef.
Near-term support for the kiwi is seen at $0.6550 with resistance at $0.6650.
Local data showed a fractional lift in job advertisements, the first in five months, but the overall trend pointed to a slowing in the labour market ID:nW9N0U602B , while consumer confidence fell to a three-year low.
New Zealand government bond yields were as much as 4.5 basis points lower at the long end of the curve.
A bounce in U.S. Treasury bonds underpinned Australian government bond futures. The three-year bond contract rose 6 ticks to 98.120, while the 10-year contract added 7 ticks to 97.3000.
The spread between 10-year AU10YT=RR and 3-year AU3YT=RR cash bonds shrunk to 78 basis points, the smallest since early June. Ten-year yields fell to 2.69 percent, the lowest in nearly four months. (Editing by Jacqueline Wong)