SYDNEY/WELLINGTON (Reuters) - The Australian and New Zealand dollars fell to multi-week lows against the greenback in a holiday-shortened session on Monday, having been hit by a wave of profit-taking as markets fretted about the prospect of a U.S. recession.
With Republicans and Democrats no closer to a deal, worries have mounted that the United States will go over the so-called "fiscal cliff" in the new year, triggering harsh government spending cuts and tax hikes.
The Aussie dollar dipped about 0.2 percent to $1.0386, its lowest since November 23, continuing to pull back from a three-month peak around $1.0585 set on December 12. Trading was subdued with the Aussie drifting in a slim $1.0386/0408 range.
Financial markets in Australia and New Zealand shut early on Monday and will remain closed over the following two days for Christmas and Boxing Day. Trading resumes on Thursday.
The kiwi touched a three-week low of $0.8216, down 0.3 percent on the day, retreating from a 15-month high around $0.8477 set earlier in the month. It was hemmed in a tight $0.8216/8249 range.
Both Antipodean currencies, however, managed to hold their ground against the yen, which held near a 20-month trough on the greenback after incoming Japanese premier Shinzo Abe renewed pressure on the Bank of Japan to adopt a 2 percent inflation target.
"There is one last catalyst that can drive the euro and other high-yield currencies higher while weighing the dollar and yen - a happy resolution to the Fiscal Cliff," said John Kicklighter, Chief Strategist at DailyFX.
"Yet, Friday's market correction is evidence that investors are starting to better appreciate the rising probability that no deal will be struck and a U.S. recession is coming in 2013."
Last week, both Antipodean currencies suffered their biggest one-week fall in months as talks to avert the U.S. fiscal cliff hit a wall.
The Aussie has broken below an uptrend line drawn from the October 8 trough, a bearish signal that could see it test Fibonacci support at $1.0367, the 50 percent retracement of its Oct-Dec rally. Still, it was on track to end the year 1.7 percent higher on the greenback.
The kiwi has slipped below its 55-day moving average at $0.8232, a key technical support, raising the risk of a slide to$0.8215, the 61.8 percent retracement of its Nov-Dec rally. It was still up nearly 6 percent so far this year.
Both Antipodean currencies have outperformed many other currencies as their relatively higher yields have been a draw for investors.
With official rates at 3.0 percent and 2.5 percent in Australia and New Zealand respectively, many analysts expect the relatively high yields will continue to attract investors, underpinning the Aussie and kiwi next year.
The prospect of more interest rate cuts in Australia is a negative for the Aussie, but growing quantitative easing in the United States, central bank buying and prospects for improved global growth are positives, said Shane Oliver, head of investment strategy at AMP Capital, who expects the Aussie to trade in a $0.95-$1.10 range.
Many in the market expect the kiwi to climb to around $0.8400-$0.8500 in the first half of 2013, before easing back in the second half.
Australian government bonds were little changed, with the three-year contract a mere 0.01 point lower at 97.270, while the 10-year contract was down 0.020 points at 96.675.
New Zealand government bonds were largely flat, although there was slight demand seen in 2019 bonds, sending the yield down half a basis point.
(Australia and New Zealand bureaux)