Australia, NZ dollars off fresh highs, data soft again

SYDNEY, July 2 (Reuters) - The Australian and New Zealand dollars levelled out on Wednesday after scaling fresh highs for the year overnight, while soft domestic data cemented already overwhelming wagers for another cut in Australian rates when the central bank meets next week.

The Aussie edged off to $0.6570, having notched a seven-month top of $0.6590 in the previous session. That continues a recent pattern of the currency marking highs during London and New York hours when the global forex market is most liquid and selling pressure on the U.S. dollar most intense.

The kiwi dollar was a shade lower at $0.6091, after reaching $0.6120 overnight in the first break of the $0.6100 barrier since October last year.

Australian data showed retail sales eked out a gain of just 0.2% in May, missing forecasts of 0.4% and the fourth straight month of miserly outcomes.

The disappointing report confounded expectations that lower borrowing costs and rising real incomes would revive household demand, and suggests the Reserve Bank of Australia will have to again downgrade its consumption forecasts.

"With consumer spending remaining in the doldrums, there is a strong case for the RBA to cut rates faster and further than most are predicting," said Abhijit Surya, a senior economist at Capital Economics.

"Moreover, with business conditions deteriorating and price pressures easing in tandem, we believe the Bank will want to frontload policy easing."

Investors are already pricing in a 97% chance the RBA will cut its cash rate by 25 basis points to 3.60% when it meets on July 8, and it is rare for policymakers to hold steady when the market is so heavily one-sided.

The market also implies rates will keep falling to a floor of 2.85%, taking it under most estimates of neutral.

The Reserve Bank of New Zealand also meets next week, but is widely expected to pause its easing cycle, having already slashed rates by 225 basis points to 3.25%.

Policymakers have indicated that rates are now in the neutral zone and they want to wait to see the impact of past cuts.

Yet investors still see scope for one or two more quarter-point moves towards 2.85%, in part because the small open economy is vulnerable to any slowdown in global trade stemming from U.S. tariffs. (Reporting by Wayne Cole; Editing by Kate Mayberry)