Aussie recovers after RBA, NZ dollar hits 3-month peak

[SYDNEY] The Australian dollar recouped earlier losses on Tuesday after the central bank stuck to its optimistic outlook for the economy, despite the likelihood of a soft reading on first-quarter growth. The New Zealand dollar scaled a three-month peak on broad weakness in its US counterpart. The Australian dollar was firm at US$0.7492, having recovered from a session low of US$0.7457. Resistance was found at Monday's high of 75 cents and a break above would target US$0.7517 touched last week.

The Reserve Bank of Australia (RBA) kept rates at a record low of 1.5 per cent at its monthly policy review and affirmed its neutral bias.

"The AUD rose because the RBA maintained its forecast for GDP growth of "a little above 3 per cent" over the next couple of years despite flat expectations for Q1 GDP," said Elias Haddad, a senior strategist at Commonwealth Bank of Australia.

Australia's first quarter gross domestic product data is due on Wednesday. The median forecast from a Reuters poll predicts growth of 0.2 per cent in the first quarter from the previous period, with some analysts seeing a small contraction.

Earlier on Tuesday, the Aussie had dropped a third of a US cent after news Australia's current account deficit narrowed to A$3.1 billion in the first quarter. That was the smallest shortfall since 2001 but disappointed forecasts for a balanced outcome.

In the debt markets, interbank futures imply a one-in-five chance of a rate cut by December, while a majority of economists forecast steady interest rates until September 2018.

Across the Tasman Sea, the New Zealand dollar reached US$0.7162, the highest since early March. Resistance was found around US$0.7167.

It has gained more than three cents since mid-May, largely thanks to solid economic data at home and an upbeat outlook for dairy, New Zealand's top export earner.

New Zealand government bonds gained, sending yields 3.5 basis points lower.

Australian government bond futures were mixed, with the three-year bond contract up one tick at 98.310. The 10-year contract also gained one tick to 97.5900, while the 20-year contract shed one tick to 97.0050.

REUTERS