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[SYDNEY] The Australian dollar gained on the British pound on Thursday as investors braced for a Bank of England meeting later in the session where it is widely expected to cut rates for the first time since 2009.
Sterling slipped a modest 0.22 per cent on the Aussie to A$1.7514, but dealers suspect it could fall much further should the BOE take the sort of aggressive action some have called for.
The pound has been trading in a relatively tight range against the Aussie since Britain's vote to leave the European Union, when it shed 6 per cent in a single day.
Money markets have fully priced in a quarter-point cut to the BOE's main interest rate but there is uncertainty on what else it might do, including asset buying or promising further easing. It may even adopt a negative interest rate policy.
Closer to home, the Aussie shrugged off disappointing retail sales data which only underscored the conditions that prompted the Reserve Bank of Australia (RBA) to cut rates earlier this week.
Retail sales rose just 0.1 per cent in June, well short of forecasts of a 0.4 per cent increase.
Adjusted for inflation, sales for the whole June quarter increased by 0.4 per cent, the smallest rise in two years and a likely drag on economic growth in the quarter.
The Australian dollar fell briefly following the data but was up 0.3 per cent to US$0.7589 in afternoon trading.
"Today's report is further confirmation that the edge has been taken off the retail part of consumer spending and (it is) not contributing to any pick up in the pace of economic growth," said David De Garis, senior economist at NAB.
"A potential growth worry for the RBA, both from volumes and low inflation viewpoints," he added.
Financial markets imply a 50-50 chance of another rate cut by December.
The New Zealand dollar inched higher on Thursday as investors took a breather after recent falls.
The currency slipped from a US$0.7257 early in the week on speculation the Reserve Bank of New Zealand might surprise at its policy meeting next week.
The market has already fully discounted a quarter point cut in rates to 2 per cent, but there have been suggestions the RBNZ could ease by half a point to really drag the kiwi lower.
New Zealand government bonds gained, sending yields two basis points lower at the long end of the curve.
Australian government bond futures eased, with the three-year bond contract down two ticks at 98.590. The 10-year contract was down 3.5 ticks at 98.020.