The Australian and NZ dollars extended their decline in the European session on Wednesday, as risk sentiment soured after hot U.S. inflation data, which fuelled concerns about the possibility of a full percentage point hike at the Fed meeting next week.

Markets are now pricing in a 38% chance of a 100 basis-point rate hike and a 62% possibility of a 75 basis-point move.

The two-year treasury yield jumped to a 15-year high of 3.80 percent, widening the yield curve gap with the benchmark 10-year note.

The yield curve inversion widened, which is considered to be an indicator of a recession.

Commodity prices are mostly lower, as the data diminished hopes for a peak in inflation and stoked worries about more aggressive Fed rate hikes to control inflation.

The aussie weakened to 1-week lows of 0.6705 against the greenback and 96.26 against yen, off its early highs of 0.6748 and 97.60, respectively. The aussie is seen finding support around 0.64 against the greenback and 94.00 against yen.

The aussie pulled back from a prior high of 1.1235 against the kiwi, with the pair trading at 1.1205. The currency is likely to face support around the 1.10 region, if it drops again.

The aussie declined to a 5-day low of 0.8847 against the loonie and a 6-day low of 1.4880 against the euro, from its early highs of 0.8883 and 1.4784, respectively. The aussie is poised to find support around 0.86 against the loonie and 1.51 against the euro.

The NZD/USD pair touched 0.5976, its lowest level since May 2020. Next key support for the kiwi is likely seen around the 0.58 level.

The kiwi dropped to more than a 2-month low of 1.6684 against the euro and an 8-day low of 85.82 against the yen, down from its previous highs of 1.6599 and 86.91, respectively. The next possible support for the kiwi is seen around 1.68 against the euro and 83.5 against the yen.

Looking ahead, Canada manufacturing sales for July and U.S. PPI for August will be released in the New York session.

NZD vs US Dollar (FX:NZDUSD)
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