Australia dollar dented by soft data ahead of RBA decision

[SYDNEY] The Australian dollar dipped on Tuesday after disappointing local data raised the risk that the economy shrank last quarter, which would be the first time since early 2011, while its New Zealand cousin held firm after bouncing overnight.

The Aussie dollar had a soft tone at US$0.7452, from US$0.7477 early, having dipped to a trough of US$0.7414 on Monday amid wild swings in the euro.

The Reserve Bank of Australia (RBA) is holding its last policy meeting of the year on Tuesday, and is widely expected to keep interest rates at 1.5 per cent for a fourth month, in large part because the economy has seemed more upbeat recently.

Yet figures on net exports and government spending proved softer than expected, leading some analysts to downgrade their forecasts for the third-quarter gross domestic product (GDP) report due on Wednesday.

Andrew Hanlan, a senior economist at Westpac, reversed his forecast to a 0.2 per cent drop in GDP from an initial 0.2 per cent increase. That would take annual growth down to 2.1 per cent, from 3.3 per cent in the second quarter.

The market seems to be assuming the soft patch will be temporary with interbank futures implying just a 14 per cent probability of a rate cut by mid-2017.

The RBA's policy announcement is due at 0330 GMT and all 64 economists polled by Reuters expect an unchanged outcome.

"Although we don't expect any further easing from the RBA in this cycle, the risk continues to be that RBA guidance moves from neutral back to an easing bias in the first quarter of 2017," Citi said in a note.

The majority of economists polled by Reuters forecast steady rates until early 2018.

The Antipodean currencies held near multi-month highs against the yen with the Aussie at 84.70 and the Kiwi at 81.15.

The New Zealand dollar stood tall at US$0.7151, having bounced from a trough of US$0.7070 on Monday when the country's Prime Minister announced his resignation.

New Zealand Finance Minister Bill English said he planned to stand for prime minister, with national elections due in late 2017.

Resistance was found at US$0.7170 with support around US$0.7130.

New Zealand government bonds dipped, sending yields as much as 4 basis points higher at the long end.

Australian government bond futures were near multi-month lows, with the three-year bond contract off 2 ticks at 98.030.

The 10-year contract shed 5 ticks to 97.1900, while the 20-year contract lost 4 ticks to 96.5200.

The spread between 10- and 3-year bonds widened to 82 basis points, from a low of 73 basis points last week. A break above 84 basis points would be the largest spread since September.

REUTERS