Australia, NZ dollars inch ahead; RBA tweaks growth language

[WELLINGTON] The Australian and New Zealand dollars edged up on Tuesday as investors wagered that US President Donald Trump's threatened tariffs might not prove as disruptive as first feared, reviving the appetite for risk.

The Aussie dollar crept up 0.2 per cent to US$0.7780, off last week's two-month trough at US$0.7713, supported by a bounce in Asian share markets as Mr Trump faced growing pressure from political and nation-state allies to pull back from proposed steel and aluminium tariffs.

There was little reaction to the Reserve Bank of Australia's (RBA's) widely-expected decision to leave interest rates at 1.5 per cent, but there were concerns the Aussie could come under pressure as the RBA sounded a cautionary note on growth at its monthly policy meeting.

"We would expect to see some softening in the Aussie as markets digest what appears to be a tweak in the RBA's GDP growth forecast over the next couple of years from 'to average a bit above 3 per cent' to 'faster in 2018 than it did in 2017',"said Westpac's head of financial market strategy, Robert Rennie.

Figures due Wednesday were forecast to show Australia's gross domestic product (GDP) expanded by around 0.6 percent in the December quarter. But following recent disappointing economic indicators, analysts are now looking for a rise of around 0.5 percent, with annual growth slowing to 2.4 per cent.

Data out Tuesday was too mixed to provide much of a lead.

Retail sales for January disappointed with a rise of 0.1 per cent, versus analysts' expectations of around 0.4 per cent.

The country's current account deficit also widened by more than expected in the December quarter to A$14 billion (S$14.36 billion), while net exports shaved 0.5 percentage points from GDP which was a little less than forecasted.

On the bright side, government spending rose strongly in the quarter and lessened the risks of a major downside surprise for the full GDP report.

Futures markets continue to price in only a minimal chance of a rise in rates by August and a 50-50 probability by year-end.

The kiwi dollar firmed 0.15 per cent to US$0.7235, slowly edging away from its recent low at US$0.7186.

"The NZD remains a by-stander amidst more interesting global developments ... Price action over the past six weeks or so shows some pretty well-defined technical ranges, with key support at US$0.7175 and resistance at US$0.7440," Jason Wong, markets strategist at BNZ Bank, said in a research note.

More action was expected from a dairy auction due to take place in the early hours of Wednesday morning. Analysts expect prices for the country's top export, whole milk powder, to fall around 2 per cent, which could weigh on the kiwi.

New Zealand government bonds eased, sending yields 4.5 basis points higher at the long end of the curve.

Australian government bond futures slipped in line with Treasuries. The three-year bond contract eased 4 ticks to 97.885, while the 10-year contract lost 7 ticks to 97.2000.

REUTERS