(Correct spelling of "paring" in paragraph 6)
By Wayne Cole
SYDNEY, July 31 (Reuters) - The Australian dollar edged up from six-week lows on Wednesday as inflation data proved a shade firmer than forecast, while its New Zealand cousin slipped to a three-week trough after a dismal reading on domestic business sentiment.
The Aussie AUD=D3 crept up to $0.6884, after earlier touching a trough of $0.6862. Some sort of bounce was overdue given the currency has fallen for eight sessions in a row, the longest losing streak since 2015.
The kiwi went the other way easing 0.3% to $0.6589 NZD=D3 and threatening chart support around $0.6567.
The Aussie got a rare lift after data showed consumer prices rose 1.6% in the year to June, a fraction above forecasts. Bears had wagered on a weaker number and were forced to cover short positions in its wake. inflation remained uncomfortably low at 1.5% and well short of the Reserve Bank of Australia's (RBA) target range of 2-3%, underlining the case for recent cuts in interest rates.
Investors reacted by paring back the chance of another cut in the next month or so, but a move to 0.75% was still priced as an 84% probability by October 0#YIB: .
"We continue to expect the RBA to leave rates on hold at its meeting next week," said Ben Udy, an economist at Capital Economics.
"We think that current stimulus will prove insufficient to turn the tide on the economy so underlying inflation should ease further in coming months. That's why we expect the RBA will cut rates to 0.5% by early next year."
Adding to the pressure for action is the rush by other central banks globally to ease policy in the face of trade worries and a slowdown in manufacturing.
The Federal Reserve is thought almost certain to cut U.S. rates by a quarter point later on Wednesday and to leave the door open to further stimulus if needed.
Anything less than a dovish statement would tend to boost the U.S. dollar and weigh on the Aussie and kiwi.
The latter was already in trouble after a measure of domestic business confidence dropped to an 11-month low in July amid gloom over the economic outlook. grim result only reinforced expectations the Reserve Bank of New Zealand (RBNZ) would cut rates by a quarter point to 1.25% at its policy meeting on Aug. 7, and likely move again by December. RBNZWATCH
"Despite generally good commodity prices and interest rates at record lows, the headwinds of a global slowdown and credit and cost constraints appear to be winning out," said Sharon Zollner, chief economist at ANZ in New Zealand.
"With the inflation outlook not consistent with the target midpoint we expect two more rate cuts this year, helping the economy to find its feet once more."
Yields on two-year bonds NZ2YT=RR duly dropped two basis points to an all-time low of 1.04%, while 10-year yields NZ10YT=RR reached a trough of 1.468%.
Australian three-year government bond futures YTTc1 eased a tick to 99.200, but that was from a record peak. The 10-year contract YTCc1 was also just off an historic high at 98.7950.
(Editing by Jacqueline Wong)