By Swati Pandey and Charlotte Greenfield
SYDNEY/WELLINGTON, Aug 24 (Reuters) - The New Zealand dollar stood near two-month lows on Thursday while its Australian cousin loitered around recent ranges with traders focused on an annual meeting of central bankers.
The Australian dollar AUD=D4 was stuck at $0.7896, after spending all of this week between $0.7951 and $0.7882.
The New Zealand dollar NZD=D4 stood at $0.7218, within spitting distance of $0.7198 touched on Wednesday and the lowest level since June 22.
The Kiwi sold-off heavily in the previous session after the New Zealand government downgraded the country's growth outlook for this fiscal year and next.
The market was disappointed by the Treasury's pre-election fiscal update "in part because it was viewed as further weakening the government's chances of re-election next month," said Sean Keane of Triple T Consulting, who works under the umbrella of Credit Suisse (SIX:CSGN).
New Zealand will see labour leader Jacinda Ardern face off Prime Minister Bill English in one of the most hotly contested elections in the country.
"Compared to a few months ago there's a lot more political uncertainty domestically than there was and the election is looking like anyone's really at this stage," said Phil Borkin, senior economist at ANZ.
Across the Tasman Sea, Australia too is facing a storm over dual citizenship of a number of high profile politicians. The Australian constitution states that citizenship of "foreign powers" must be renounced to be eligible to stand for Parliament.
Analysts say the turmoil could dampen growth in the A$1.7 trillion economy.
"The near-term risk is that this event weighs on household and business sentiment, which could impact domestic activity," said Alexandra Veroude, economist at Bank of America Merrill Lynch (NYSE:BAC).
Veroude added that the bank's central scenario was not altered yet and that it expects business confidence to remain supported due to a large state-led infrastructure pipeline.
Analysts will now veer attention to a gathering of central bankers in Jackson Hole, Wyoming set to start later in the day. Most major currencies are likely to tread water in the meanwhile due to the lack of any directional bias.
Investors are awaiting speeches from Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi at the Jackson Hole symposium on Friday.
New Zealand government bonds 0#NZTSY= were mixed, sending yields 1 basis point higher at the long end and about 1-2 basis points lower at the short-end of the curve.
Australian government bond futures rose, with the three-year bond contract YTTc1 up 1 tick at 98.010. The 10-year contract YTCc1 added 3 ticks to 97.36. (Editing by Jacqueline Wong)