SYDNEY, May 27 (Reuters) - The Australian and New Zealand dollars were struggling to gain traction on Monday as traders braced for inflation tests at home and abroad, while bonds steadied after taking a hit in the previous week.
The Aussie held at $0.6630 amid thin liquidity thanks to a holiday in the U.S., having tumbled 1% last week to as low as $0.6589. It failed to hold a key $0.6650 chart level last week which turned into near-term resistance, with support now around $0.6580.
The kiwi dollar had better luck and was last up 0.1% at $0.6129, after slipping just 0.2% last week in the face of a strong U.S. dollar thanks to the hawkish turn from its own central bank. It has support at $0.6084.
The kiwi also benefited from more carry demand as investors borrow yen at low rates to invest in the higher yielding currencies, sending it flying to a 17-year peak of 96.15 yen on Friday. It last hovered at 96.05 yen on Monday.
Australia's retail sales data on Tuesday and the monthly inflation figures on Wednesday will be the local data highlights this week. Swaps are pricing in local rates would stay high for longer, with just a 35% probability for one rate cut in December.
"AUD/USD is likely to consolidate until the release of the Australian April CPI indicator which poses upside risks to AUD/USD," said Carol Kong, a currency strategist at the Commonwealth Bank of Australia.
CBA expects the consumer price inflation in Australia held steady at 3.5% in April, in part because prices of household goods rebounded last month. A Reuters poll of economists showed the median is for a slight easing to 3.4% from March's 3.5%.
The other risk event is the U.S. figures on core personal consumption expenditures (PCE) on Friday, the Federal Reserve's preferred measure of inflation. Median forecasts are for a rise of 0.3% in April, keeping the annual pace at 2.8%, with risks on the downside.
The Aussie has lost ground to the kiwi and was last at NZ$1.0823, the lowest in two weeks, after a slide of 0.8% last week.
Three-year bond futures held at 96.03, after falling 14 ticks the previous week, while ten-year rose 3 ticks to 95.71, having lost 10 ticks last week.
In New Zealand, the government will hand down its budget on Thursday amid rising debt levels and has already vowed fiscal responsibility. (Reporting by Stella Qiu; Editing by Himani Sarkar)
