By Swati Pandey and Ana Nicolaci da Costa
SYDNEY/WELLINGTON, July 19 (Reuters) - The Australian dollar stood at two-year peaks and its New Zealand cousin held near a five-month top as the greenback wrestled with worries about the prospects for the Trump administration's economic agenda.
The U.S. currency was reeling from the collapse of the Republicans' push to overhaul healthcare, raising questions over President Donald Trump's ability to pass promised tax cuts and infrastructure spending. Australian dollar AUD=D4 was at $0.7924, within a whisker of $0.7942 touched on Tuesday - a level not seen since May 2015.
The Aussie also got a boost from an upbeat view of the economy by the country's central bank, leading investors to narrow the odds on a hike in interest rates. analysts see the next chart target at $0.8000.
"The Reserve Bank of Australia's assessment has pushed AUD rates and yields higher against the global trend, widening its yield differentials. At this stage, it may not make too much sense speculating against the RBA," Morgan Stanley (NYSE:MS) said in a note.
Morgan Stanley had suggested selling the Aussie at $0.7870 on Monday but has moved to a neutral position on the currency now.
Across the Tasman Sea, the New Zealand dollar NZD=D4 stood at $0.7348 having recovered all the ground lost to a surprisingly soft second-quarter inflation reading.
It had gone as low as $0.7261 on Tuesday as traders pushed back expectations of the timing of a possible rate hike by the Reserve Bank of New Zealand. was a rollercoaster day yesterday to say the least. Today is the exact opposite, where it has been remarkably steady," said ANZ Senior Economist Philip Borkin.
"Our bias is to the downside but it's one where it's hard to have too strong a conviction right here right now given that U.S. dollar weakness theme."
New Zealand government bond prices 0#NZTSY= were mostly higher, with the 10-year yield down 4 basis points.
Australian government bond futures were mixed, with the three-year bond contract YTTc1 flat at 97.940. The 10-year contract YTCc1 rose 1.5 ticks to 97.2700.