SYDNEY, July 23 (Reuters) - The Australian and New Zealand dollars extended their losing streak on Tuesday, hammered by fears over China's economy as small cuts to interest rates failed to impress, while carry trades continued to unwind amid increased market volatility.
The Aussie AUD=D3 slipped 0.1% to $0.6636, having tumbled 0.6% overnight to as far as $0.6632, a three-week low. It was down for seven straight sessions, with the risk on the downside for a deeper pullback towards the 200-day moving average of $0.6586.
The kiwi dollar NZD=D3 was also down 0.1% to a 2-1/2 month low of $0.5966, after falling 0.5% overnight. It has been weighed down in particular by expectations that its central bank could start cutting interest rates as soon as next month.
"The interest rate cuts by the People's Bank of China and the outcomes of the Third Plenum are too modest to convince market participants a significant acceleration in the Chinese economy is in prospect," said Joseph Capurso, head of international economics at the Commonwealth Bank of Australia.
"Thus, the weakness in AUD. The continued fall in AUD/USD despite stability in the USD suggests AUD/USD may have some further downside over the next few days."
The soft outlook for the Chinese economy has sent copper prices to more than three-month lows and iron ore down, also weighing on the Australian dollar.
Not helping is the continued unwinding of carry trades amid heightened market volatility. In such trades, investors borrow the low-yielding yen to invest in high-yielding currencies.
The Australian dollar fell 0.3% to 103.97 yen AUDJPY=R , well off its 33-year peak of 109.67 yen hit just two weeks ago. The kiwi dollar also slipped 0.3% to 93.53 yen NZDJPY=R , the weakest level in about two months.
There are no major data releases this week out of Australia or New Zealand. Swaps currently imply a 20% probability that Australia could hike interest rates next month. In New Zealand, bets are 50-50 for a rate cut in August.
0#RBAWATCH 0#RBNZWATCH The discrepancy has sent the Aussie higher on the kiwi AUDNZD=R , fetching NZ$1.1111, not far from its 20-month peak of NZ$1.1141 hit just a week ago.
