By Swati Pandey and Charlotte Greenfield
SYDNEY/WELLINGTON, Oct 28 (Reuters) - The Australian dollar touched a two-week low on Friday, staring at its second straight weekly loss as its U.S. counterpart strengthened ahead of U.S. third-quarter economic data.
The Australian dollar AUD=D4 held at $0.7593 after hitting a trough of $0.7579, its lowest since Oct.14. It fell 0.8 percent on Thursday, its biggest loss in a week.
The Aussie had risen as high as $0.7709 on Wednesday but once again turned tail at the level, marking the fifth time since September that it has lost a bout with the crucial 77-U.S. cents barrier.
Data out Wednesday showed consumer prices slightly topped expectations but underlying inflation, a measure the Reserve Bank of Australia (RBA) watches, had a narrow miss.
That left the door open for further easing, although the futures market 0#YIB: implies a near zero chance of a rate cut at the RBA's Nov. 1 policy meeting.
The Aussie was also weighed down by a firmer U.S. dollar which gained from yields on Treasuries rising to roughly five-month peaks, tracking German and British bond yields.
"Given the scope for re-pricing of RBA rate cut expectations lower coupled with the US yield curve moving higher, the Aussie could find itself at the mercy of diverging policy expectations," said Stephen Innes, senior currency trader at OANDA Australia and Asia Pacific.
U.S. data later on Friday are expected to show the world's biggest economy expanded an annual 2.5 percent pace during the third quarter.
A stronger number would reinforce expectations of an interest rate hike by the Federal Reserve in December, which could set a bearish tone for the Aussie, said Matt Simpson, senior analyst at ThinkMarkets.
Besides, sentiment is likely to be jittery in the run up to U.S. elections the following week.
The New Zealand dollar NZD=D4 huddled near 9-day lows on Friday, after two straight days of losses.
The kiwi traded around $0.7134 after hitting a trough of $0.7109 the previous day. It is on track to end the week down 0.4 percent after rising more than 1 percent last week.
"NZD strength was thwarted by a generally stronger USD overnight," said Kyle Uerata, economic statistician at ANZ, in a research note.
New Zealand government bonds 0#NZTSY= eased, sending yields 4.5 basis points higher at the long end of the curve.
Australian government bond futures hit 5-month lows amid a global sell-off of sovereign debt, in part on speculation inflation might make a come-back as commodities rally.
The three-year bond contract YTTc1 dropped 3 ticks to 98.24, while the 10-year contract YTCc1 slipped 5.6 ticks to 97.635. (Editing by Shri Navaratnam)