Australia, NZ dollars hold hefty gains, await RBA rate policy

[SYDNEY] The Australian and New Zealand dollars held hefty gains on Monday after downbeat US economic data late last week pushed back expectations of a rate hike by the Federal Reserve.

The Australian dollar popped to a two-week high of US$0.7616, adding on to a 1.3 per cent gain on Friday in the wake of disappointing US growth figures which forced Aussie bears to cover short positions.

It was last at US$0.7610 with support at US$0.7490 and resistance at US$0.7650.

The Aussie's gain of 2 per cent will only add to the case of an interest rate cut by the Reserve Bank of Australia (RBA).

The central bank holds its monthly policy meeting on Tuesday and a majority of economists favour a basis point to a new low of 1.5 per cent.

Out of 49 analysts polled by Reuters 38 expected more stimulus, largely to curb an unwelcome slowdown in inflation.

Interbank futures put the probability of a move around 60 per cent and are fully priced for a cut by the end of the year.

Yields on two-year government paper are already down at 1.47 per cent in anticipation a cut - a level never seen before.

Australian bond futures also scaled fresh all-time peaks, with the three-year bond contract up 5 ticks at 98.640. The 10-year contract rose 5 ticks to 68.1650, while the 20-year contract was steady at 97.5000.

The Antipodean currencies bounced 1 per cent against the yen, having recovered some ground since Friday. The Bank of Japan underwhelmed markets late last week with an additional stimulus measure that fell far short of what some had hoped.

Across the Tasman Sea, the New Zealand dollar paused at US$0.7222, having leapt nearly 2 per cent on Friday.

It was marking time ahead of the RBA meeting as a decision not to cut was likely to see the Aussie rise sharply on the kiwi, and relieve some pressure for a policy easing at home.

The Reserve Bank of New Zealand (RBNZ) holds its rate review on August 11 and markets are wagering heavily on a cut.

"Failure to deliver a clear, concise easing plan when the monetary policy statement is released on the 11th will send the NZD to continue to test higher," said OM Financial Limited private client nanager Stuart Ive.

New Zealand government bonds gained, sending yields around 5 basis points lower across the curve.

REUTERS