By Charlotte Greenfield
WELLINGTON, Oct 1(Reuters) - The Australian and New Zealand dollars eked out gains against the greenback on Monday, despite low trading volumes due to a state holiday in Australia.
The Australian dollar AUD=D4 firmed, rising to $0.7240 from $0.7202 on Friday.
Some of the previous week's strength in the U.S. dollar had worn off, and a looming deadline in Canada-U.S. talks over reworking the North American Free Trade Agreement were weighing on the greenback, while the loonie rallied. commercial hub of Sydney was out for a state public holiday, meaning trading was light.
The Aussie had found support around $0.7200, but analysts warned it remained vulnerable given ongoing global jitters could dampen commodity currencies and the U.S. Federal Reserve hiking rates was widening interest rates differentials.
"AUD risks probably remain to the downside....given the confluence of FOMC (Federal Open Market Committee) meeting, US review of China tariffs and EUR/Italy budget risks," said Imre Speizer, currency strategist at Westpac Bank.
The latest hike from the Fed has left U.S. two-year yields US2YT=RR at 79 basis points over those in Australia AU2YT=RR , easily the largest premium in recent years.
Markets are pricing in at least three more Fed hikes but no move from the Reserve Bank of Australia (RBA) until early 2020, given subdued inflation and wages at home.
The RBA holds its October meeting on Tuesday and is considered certain to keep rates at 1.5 percent.
Across the Tasman Sea, the New Zealand dollar drifted higher but lingered below the one-month high of $0.6696 hit the previous week as relief over robust GDP data, improved business sentiment and an unchanged central bank tone wore off.
The kiwi edged up 0.14 percent to $0.$0.6624 on Monday.
Tuesday would bring yet another economic confidence measure, the New Zealand Institute of Economic Research's (NZIER) Quarterly Survey of Business Opinion (QSBO).
The results could move the kiwi higher if they confirmed a separate ANZ Bank survey's indications last week that business confidence was lifting off ten-year lows. QSBO has remained comparatively upbeat compared to the ANZ survey. If this trend continues into Q3, a more upbeat business confidence reading could provide some support to the NZD this week," said ASB economists in a research note.
New Zealand government bonds 0#NZTSY= gained, sending yields 0.5 basis point lower towards the long end of the curve.
Australian government bond futures edged higher, with the three-year bond contract YTTc1 up 2 ticks at 97.915. The 10-year contract YTCc1 rising 0.5 ticks to 97.3150.