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Australia, NZ dollars hobbled by surging global COVID-19 cases

SYDNEY, Oct 26 (Reuters) - The Australian and New Zealand dollars eased on Monday, undercut by an uptick in risk-aversion ahead of the U.S. election and on accelerating coronavirus infections globally.

The Australian dollar was fetching $0.7117, after it ended the week at $0.7119 on Friday, while its New Zealand counterpart was trading at $0.6682 having hit a low of $0.6677 earlier in the session.

Surging coronavirus cases in Europe and the United States and a lack of progress toward a U.S. stimulus package have put traders in a cautious mood, analysts said.

Italy on Sunday ordered bars and restaurants to close by 6 p.m. and shut public gyms and cinemas to try to halt a rapid COVID-19 resurgence, while the United States saw its highest ever number of new infections in the past two days.

Concerns over a potentially disputed U.S. election, dim prospects of a stimulus package before the vote and tighter pandemic containment measures in Europe, also underpinned the U.S. dollar, which on Monday tacked on about 0.1%.

Australian government bond futures were slightly higher on the day, with the three-year bond contract up 1 tick at 99.849, on track for the second consecutive month of gains. The 10-year contract was 4 ticks higher to 99.19.

“Can last week’s rise in global bond yields continue this week? That will depend on headlines around U.S. fiscal stimulus prospects as we head into the election, more so than domestic data outcomes,” Westpac strategists said in a note.

Besides the cautious global backdrop, the Aussie is also facing more pressure from expectations of further rate cuts and quantitative easing by the Reserve Bank of Australia (RBA) when it meets on Nov. 3.

“We still think the RBA is likely to cut interest rates at their Nov 3 meeting, from 0.25% to 0.1%,” UBS analysts said. “We also think the RBA will explicitly aim to lower yields, and flag bond buying, including yields beyond 3-years.”

On the data front this week, analysts polled by Reuters expect a sharp recovery in Australia’s headline inflation following the prior quarter’s record decline.

“Given current sentiment, only a major upside surprise could provide any real market response,” Westpac analysts said. (Reporting by Paulina Duran in Sydney; Editing by Shri Navaratnam)