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[SYDNEY] The New Zealand dollar was knocked off a two-week high on Thursday after the central bank left the door wide open for another interest rate cut this year, even though holding rates this month was widely expected.
The New Zealand dollar briefly dropped to as low as US$0.7316 in early trade after the Reserve Bank of New Zealand (RBNZ) maintained its easing bias despite solid activity in the labour market and the broader economy.
It was last down 0.3 per cent at US$0.7331. On Wednesday, it climbed to US$0.7366, its highest since Sept 9 after the US Federal Reserve left rates unchanged.
The kiwi is one of the best performing G10 currencies this year, having risen 7.5 per cent. The currency's resilience is adding to downward pressure on inflation, another headache for the RBNZ.
"We're seeing a fairly tame response on the currency because of the fact that the RBNZ has already flagged that further easing is required. So that is not going to be a shock," said Tom Kennedy, Sydney-based economist at JP Morgan.
The Australian dollar climbed to a two-week high of US$0.7638 following upbeat assessment of the economy by the country's central bank.
New Reserve Bank of Australia Governor Philip Lowe emphasised the limits to monetary policy in his first public appearance, saying it was "not particularly useful" to continue cutting rates in the hope that it will eventually lift growth.
The Aussie was also boosted by a lower greenback following the Fed meeting overnight and by the Bank of Japan's recommitment to lifting the economy out of decades-long stagnation.
Traders are now looking at 77 US cents as the next stop for the Aussie. It has breached that barrier several times in the last few months but fell back each time.
The Aussie outpaced its New Zealand counterpart, rising 0.5 per cent for its sixth straight day of gains.
New Zealand government bonds rose, sending yields lower across the curve.
Australian government bond futures were higher as well, with the three-year bond contract up 2 tick at 98.43. The 10-year contract added 8.5 ticks to 97.95.