NZ dollar jumps as RBNZ protests too little, Aussie soggy

[SYDNEY] The New Zealand dollar shot up on Thursday after the central bank held official cash rates at record lows but sounded less dovish than bears in the market had wagered on.

Some had expected the Reserve Bank of New Zealand (RBNZ) to do more to talk down a resurgent kiwi which had gained 3 per cent since May. But it only said a lower exchange rate "would help rebalance the growth outlook".

"The Governor did not say that a lower currency was 'needed' for rebalancing to occur. This subtler approach was arguably a surprise to some investors," Citi economist Josh Williamson said.

The New Zealand dollar jumped to US$0.7280 immediately after the statement, but was still far from a four-week peak of US$0.7320 touched last week. It was last up 0.4 per cent at US$0.7248.

"The statement was arguably slightly less dovish than some investors were expecting," said Mr Williamson who is tipping the next rate move to be a hike in the first quarter of 2018.

The central bank reiterated its policy would be accommodative for a "considerable period," after the economy grew a disappointing 0.5 per cent in the first quarter.

Even so, the RBNZ was optimistic about the outlook, citing low interest rates and the 2017 Budget which would help boost family income and infrastructure spending.

New Zealand's economy has been among the best performing advanced economies in recent years.

Across the Tasman Sea, the Australian dollar was back at US$0.7549 and near one-week lows, after failing repeatedly at the US$0.7630 mark.

The Aussie had been on an uptrend since the beginning of June but a drop in commodity prices last week saw it falter after touching a 2-1/2 month high of US$0.7636.

Australian government bond futures gained, with the three-year bond contract up one tick at 98.19. The 10-year contract added 1.5 ticks to 97.58.

New Zealand government bonds were mixed with yields down one basis point at the short-end and up two basis points at the long end of the curve.

REUTERS