By Wayne Cole
SYDNEY, Aug 14 (Reuters) - The Australian and New Zealand dollars were set to end the week on a flat note on Friday, as a sharp rise in Treasury yields steadied their U.S. counterpart after a run of losses.
The Aussie was stuck at $0.7142 AUD=D3 , after again running into resistance around $0.7190, leaving it short of the recent 18-month top of $0.7242. It was also down 0.2% on the week so far, which if maintained would break a string of seven consecutive weekly gains.
The kiwi dollar eased back to $0.6532 NZD=D3 , having lost almost 1% on the week so far and touched a one-month trough of $0.6524. That was some way from the recent eight-month peak of $0.6716, which looks to be a ceiling for now.
The kiwi rally was partly undone by the Reserve Bank of New Zealand (RBNZ), which went out of its way this week to sound dovish on policy, with one of its top official saying the central bank was determined to drive yields lower to drag the currency down. RBNZ has made the case for further easing," said Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities.
"While we believe a funding for lending program would make more sense, negative rates in NZ cannot be ruled out as an outside chance anymore," he added. "Negative rates are shaping up as a 50-50 bet after March next year."
As a result, New Zealand 10-year yields NZ10YT=RR were off 10 basis points for the week at 0.69%, bucking a 14 basis point increase in U.S. yields to 0.70% and wiping out the kiwi's rate premium.
In contrast, Australian 10-year yields AU10YT=RR followed Treasuries higher and rose 10 basis points on the week to 0.93% as the Reserve Bank of Australia (RBA) ruled out further easing in the near term.
Speaking on Friday, RBA Governor Philip Lowe said monetary policy had done what it could and it was up to fiscal policy to support the economy, urging the government to borrow as much as needed to fund more spending. also dismissed calls to intervene to push the Aussie down, saying the currency was fairly valued.
"The contrast between Australian and NZ bonds is stark," said David Plank, head of Australian economics at ANZ, noting the 10-year spread had widened to more than 25 basis points.