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Australia, NZ dlrs shunted by U.S. vote jitters

SYDNEY, Nov 5 (Reuters) - The Australian and New Zealand dollars were shackled by heightened uncertainty over the outcome of a knife-edge U.S. election, with Thursday’s trade characterised by nervousness as investors braced for a potentially drawn out vote counting process.

Although the election still remains very tight in key swing states, Democrat Joe Biden has managed to edge closer to the White House, prompting President Donald Trump to open a multi-pronged attack on vote counts in several states by pursuing lawsuits and a recount.

That has raised the spectre of lengthy legal battles and no winner being declared for weeks.

(Who is winning? Click on) (For multimedia U.S. election coverage, click: here)

The Australian dollar traded at $0.7175 after closing at $0.7178 on Wednesday.

The New Zealand dollar was slightly lower at $0.6701 from $0.6706 on Wednesday.

“Until we have a clear win, and this may take until Friday, we should expect markets to be volatile... A contested outcome would drag this volatility for as long as we have a clear result,” said Robeco analyst Fabiana Fedeli.

Republicans look likely to retain control of the Senate and can use that to stymie Biden’s fiscal policy agenda in the event he wins the race, adding another complicating factor for currency traders.

“In the short term, until uncertainty on the outcome continues, we can expect investors to turn more defensive and some of those “Blue sweep” trades...are likely to unravel,” Fedeli said.

She expects the unwinding to occur in emerging market equities and currencies, including China, the renewables theme, and cyclicals.

“We are also likely to see some relief in ‘Red tide’ trade, such as oil, or Russia which is a country that is expected to incur sanctions under a Biden administration. This however, could be a very short term trade and just in place until we have some clarity on the win.”

New Zealand government bonds rose with yields falling 4-6 basis points at the long-end of the curve.

Australian government bond futures were higher, with the three-year bond contract up 1 tick at 99.855. The 10-year contract climbing 5 ticks to 99.255.

Editing by Shri Navaratnam

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