Australia dollar wrestles with 80-cent barrier; NZ dollar steady

By Swati Pandey

SYDNEY, Sept 19 (Reuters) - The Australian dollar struggled at the key barrier of 80 U.S. cents on Tuesday as investors hedged against the risk of a hawkish Federal Reserve, while the New Zealand dollar held steady ahead of a closely-watched dairy auction.

The Aussie AUD=D4 held at $0.7975, coming back up from a low of $0.7940 touched on Monday, the lowest since Sept. 4.

The commodity-driven Aussie had fallen in sympathy with its Canadian counterpart after Bank of Canada (BOC) Deputy Governor Timothy Lane said that the Canadian currency's strength would be a factor in future rate decisions.

The loonie CAD=D4 had surged to a two-year high of C$1.2063 on Sept. 8 after the BOC raised interest rates.

The Reserve Bank of Australia (RBA) has also protested a rising Australian dollar recently, saying further strength would compress inflation and hurt economic growth. The Aussie had climbed to a near 2-1/2-year high of $0.8125 this month.

It has since faltered as policymakers elsewhere have moved to dial down stimulus when the RBA has kept rates at record lows.

Yet, in minutes of its September policy meeting released on Tuesday, the RBA sounded more upbeat on the economic outlook led by an improving labour market. is a slight hawkish tilt creeping into RBA commentary of late although we would characterise the RBA as still maintaining a neutral policy bias," said Gareth Aird, an economist at Commonwealth Bank of Australia.

"The marked improvement in the labour market means that baring an economic shock, the next move in the cash rate is up. Market pricing has shifted further towards tightening over the past week. A rate rise is fully priced by August 2018."

That would still be far behind the Fed which is expected to announce plans to reduce its balance sheet, though the market is divided over whether it would raise rates in December.

The European Central Bank is inching closer to exiting its generous quantitative easing, while its Canadian counterpart has already raised rates twice this year.

The New Zealand dollar NZD=D4 held at $0.7281, from a low of $0.7249 touched in the previous session.

Investors will keenly watch the results of the Global Dairy Trade Auction in the wee hours of Wednesday followed by current account and gross domestic product data later in the week.

"The dairy auction is again growing in market importance as milk production ramps up into the spring season, and the focus on Chinese demand levels becomes more acute," said Sean Keane, a director at Triple T Consulting.

"One of the surprises so far this season has been the general absence of significant Chinese buying at the GDT auction."

New Zealand government bonds 0#NZTSY= were mostly unchanged.

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Australian government bond futures eased, with the three-year YTTc1 bond contract down 2 ticks at 97.79 and the 10-year contract YTCc1 down 1.5 ticks at 97.155. (Editing by Jacqueline Wong)