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Australian dollar trades fractionally higher head of central bank meeting

SYDNEY, Feb 1 (Reuters) - The Australian and New Zealand dollars were little changed on Monday ahead of a central bank meeting as cautious currency traders watched on while a wave of runaway retail investors unsettled equity markets.

The Aussie was slightly higher versus the U.S. dollar at $0.7650 on Monday afternoon, recovering from a low of $0.7606 earlier in the session. The New Zealand dollar was trading 0.2% higher at $0.7196, recovering from an intraday low of $0.7151 earlier in the day.

Traders expression caution amid disruption on Wall Street involving hedge funds and retail equity investors, with Australia’s central bank due to hold a policy meeting on Tuesday and a landmark speech outlining its policy settings for the year coming on Wednesday.

In particular, investors will be seeking clues about the Reserve Bank of Australia’s (RBA) A$100 billion ($76 billion) quantitative easing program, which expires in April.

Most analysts assume the bank will extend the programme, if only to lessen upward pressure on the Aussie, but will be looking for signs that purchases will be tapered slightly.

With other major central banks still rapidly expanding their balance sheets, any pullback by the RBA would likely see local bond yields and the currency surge higher.

Yields on Australian 10-year bonds were at 1.11%, the highest since Jan. 11, having risen steadily from a low of 0.73% last October. New Zealand government bonds were lower, sending yields about 5 basis points higher at the long-end of the curve.

The “AUD may rally modestly intraday if the RBA does not hint at an announcement” this week, Commonwealth Bank of Australia traders told clients in a note on Monday. “But the overall trend is for a weaker AUD this week if global equity markets continue to sink.”

$1 = 1.3082 Australian dollars Reporting by Paulina Duran; Editing by Kenneth Maxwell

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