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The Australian and New Zealand dollars came under renewed pressure on Monday as commodity prices slid on concerns about China's vast yet troubled property sector, while local bonds heaved a sigh of relief following a global rout.
The Aussie eased 0.2% to $0.6427 after finishing last week largely flat. It had support at the 10-month low of $0.6358 while resistance was at $0.6465, a high from Friday.
The kiwi dollar also slipped 0.2% to $0.5948, having managed a 1.0% rise last week, helped by expectations of another interest rate hike following strong gross domestic product data. However, it failed to breach 60 cents.
Both dipped as China-related sentiment worsened following an announcement from embattled China Evergrande saying it was unable to issue new bonds due to an investigation into flagship onshore unit Hengda Real Estate.
Property shares slumped and the offshore yuan eased, with caution ahead of a week-long holiday also curtailing sentiment. Iron ore prices, a key Australian export to China, slid 2% to 844.5 yuan ($115.60) a metric ton.
"Yield spreads, general USD strength and CNY weakness all continue to stand in the way of a firmer AUD," said FX strategy head Ray Attrill at National Australia Bank.
"Neither USD nor CNY developments are supportive of higher levels. Best hope for near term gains would be if local CPI data sees expectations lift for additional RBA tightening."
The highlight on the local calendar is Australia's monthly consumer price index (CPI) report due on Wednesday. Economists expect headline inflation likely accelerated to 5.2% in August from 4.9%, attesting to the meandering path inflation is taking to trend down.
After signals from global central banks that rates would stay higher for longer, market participants are seeing almost a certain chance that the Reserve Bank of Australia (RBA) will have to hike once early next year to tame inflation. They also priced out any chance of a cut next year.
Local bonds rallied on Monday after a global bond rout last week. Benchmark 10-year Australia government bond yields fell 5 basis points to 4.315%, moving away from a decade high of 4.380% hit on Friday.
Three-year yields also eased 5 bps to 4.013%. (Reporting by Stella Qiu; Editing by Christopher Cushing)