By Daniel Leussink
TOKYO (Reuters) - The dollar held gains against its peers early on Wednesday, thanks to higher U.S. yields and better-than-expected data, while its Australian counterpart took a knock after disappointing economic growth figures for last quarter.
The Australian dollar slipped 0.4 percent to a two-month low of $0.7052 as data released earlier in the day reinforced recent evidence of slowing domestic momentum and backed market expectations for a rate cut this year.
Economic growth came in at a disappointing 0.2 percent in the fourth quarter, below an expected 0.3 percent, an outcome sure to keep the Reserve Bank of Australia (RBA) on heightened watch after it abandoned its long-held tightening bias last month.
On Wednesday, the RBA ended a 30th straight meeting with rates at a record-low 1.50 percent.
"Given that many forecasters were on 0.2 percent for fourth-quarter GDP (gross domestic product), the price action on the Australian dollar is worrying," said Sean Callow, senior currency strategist at Westpac in Sydney.
"It seems markets are not impressed with the details of the report, such as 0.4 percent on household consumption, slight downward revisions and reliance on public spending to keep the economy moving," he said.
The Aussie was last down 0.3 percent at $0.7062. It also lost as much as half a percent against the Japanese yen.
On Tuesday, the U.S. dollar rose as unexpectedly strong data on U.S. services industries and new home sales helped sooth some fears about the state of the world's top economy.
The dollar index, which measures the greenback against a basket of six major peers, gained for the fifth straight session overnight, hitting a two-week high of 97.008. It traded at 95.698 early on Wednesday.
The euro was down a shade at $1.1300, hovering near two-week lows versus the greenback amid bets that the European Central Bank meeting on Thursday would indicate a delay in raising rates until next year and soon re-launch long-term bank loans to fight an economic slowdown.
Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo, said the dollar's recent strength against the single currency may not last.
"The euro appears to have been sold too much," he said. "If it stages a comeback, it will likely lead to a drop in the dollar index."
Investors were also looking to Friday's U.S. non-farm payrolls release for February for fresh indications of wage growth and labor market strength.
Among other G10 currencies, the Canadian dollar traded close to its lowest level in five weeks, hurt by a combination of trade troubles, resignations from Prime Minister Justin Trudeau's cabinet and bets the Bank of Canada (BoC) could be close to changing its policy direction.
The BoC is expected to leave domestic borrowing costs unchanged at its policy meeting later on Wednesday, though some traders expect it might lower rates later this year.
Against the yen, the dollar was down a tad at 111.83 yen.
The benchmark 10-year U.S. Treasury yield stood at 2.715 percent, after last scaling 2.768 percent, its highest since Jan. 23, on Monday.