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REFILE-Australia, NZ dlrs set for first monthly drop since March

(Corrects paragraph 1 day of the week)

SYDNEY, Sept 30 (Reuters) - The Australian and New Zealand dollars were poised for their first monthly loss since March on Wednesday, as expectations of further monetary policy easing in the two countries and fears of a slower global economic recovery hurt risk appetite.

The Australian dollar, a liquid proxy for risk, was last down 0.2% at $0.7118.

It has fallen 3.5% so far this month on growing expectations of a rate cut to 0.1% later this year from 0.25% now. The last time the Aussie clocked a monthly decline was in March, when the COVID-19 pandemic led to a global market rout.

The Aussie also came under added pressure this month, following a sell-off in U.S. equities on fading hopes of U.S. fiscal stimulus.

The New Zealand dollar was last off 0.1% at $0.6586. For the month, it was down 2.1%, wiping off the 1.6% gain made in August.

Currency strategists said they expect some volatility in the run-up to the U.S. presidential election in early November.

“For the FX market, rather than the outcome of the presidential race itself, we think the important factor is how aligned the houses will be and how easy it will be for legislation, particularly around fiscal spending, to be passed,” ANZ said in a note.

“On this front, the odds don’t look great for the USD, with both of the most likely scenarios likely to lead to USD weakness regardless of who wins the presidency.”

As a result, ANZ said it was close to “solid strategic levels” to start buying cyclical currency exposure in the Aussie dollar.

“We still think the fourth quarter will be solid for risk appetite. As such, we are buying dips in the AUD, EUR, CNY and other cyclical Asia currencies,” ANZ said.

The bank is neutral on the kiwi dollar with the Reserve Bank of New Zealand expected to take interest rates to negative territory and adopt measures to keep the currency weaker.

New Zealand government bonds eased, sending yields about 3-5 basis points higher across the long-end of the curve.

Australian government bond futures slipped, with the three-year bond contract down 1.5 ticks at 99.78. The 10-year contract dipped 2 ticks to 99.150. (Editing by Subhranshu Sahu)

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