New Zealand dollar rises in relief rally, Aussie friendless

[SYDNEY] The New Zealand dollar got a leg up on Wednesday after the Reserve Bank of New Zealand wrong-footed some investors by taking no new steps to curb a hot housing market, while the Australian dollar struggled with sliding iron ore prices.

The New Zealand dollar was squeezed higher to US$0.6810, having gained a full cent from a six-week low touched on Tuesday. Its next big resistance level is US$0.6891, the 23.6 per cent retracement of the January-April move.

In its six-monthly financial stability report, the RBNZ said it was increasingly concerned about the country's overheated housing market, but it stopped short of taking measures to tighten lending, forcing kiwi bears to the exit.

"While the report maintained a dovish outlook, there were no new policy measures included in the statement," said Stephen Innes, a senior trader at FX firm OANDA Australia and Asia Pacific.

"Markets had been looking for any changes to macro-prudential policy to counter house price inflation across the country."

The kiwi rallied across the board, with the euro down to NZ$1.6746, from a three-month peak of NZ$1.6929 touched on Tuesday.

It was a clear outperformer against its Aussie neighbour which dropped nearly 1 per cent to NZ$1.0806.

There was not much love anywhere for the Australian dollar . It dipped to US$0.7351, from US$0.7365 early, pulling closer to a two-month trough of 73 US cents touched on Tuesday.

Another slide in prices of iron ore, Australia's top export earner and heavy yen buying weighed on sentiment for the commodity-currency.

The Aussie has tumbled around 5 cents in three weeks, largely after the Reserve Bank of Australia cut rates for the first time in a year to combat the risk of deflation.

"Economic growth is going to be slower, inflation will stay low, and the reality is that the Australian central bank will be dragged into moderate further easing over the next six to 12 months," said Rob Mead, head of portfolio management at Pimco Australia. "That's good for bond prices."

Markets are fully priced for another easing to a record low of 1.5 per cent late this year and imply a small chance of a follow-up move by December.

New Zealand government bonds eased, sending yields as much as 5 basis points higher on the long-end.

Australian government bond futures ran into profit taking after recent gains. The three-year bond contract lost 2 ticks to 98.420, having touched a record peak on Tuesday. The 10-year contract eased half a tick to 97.7000, while the 20-year contract fell 2.5 ticks to 97.0600.

The two-year cash bond yield edged up to 1.6 per cent, from an all-time low of 1.5 per cent touched last week. It was as high as 2.1 per cent late April.

REUTERS