Australia, NZ dollars inch higher, eyes on central bank meetings

[SYDNEY] The Australian dollar briefly nudged higher on Tuesday after the country's central bank hinted at a steady policy outlook, but trading was overshadowed by looming meetings of the Bank of Japan (BOJ) and Federal Reserve.

The Australian dollar rose as high as US$0.7554 after the minutes of the Reserve Bank of Australia's (RBA) September meeting showed it was comfortable with the current policy after holding rates at 1.50 per cent earlier this month.

It was last around US$0.7545, up around 0.16 per cent. On Monday, it climbed to a more than one-week high but selling pressure emerged above US$0.7560.

"No one is prepared to take on too much risk ahead of the BOJ and Fed meets," said Chris Weston of IG Markets.

Mr Weston said a break above US$0.7561 would turn him bullish toward the Aussie.

The Aussie traded higher on both the euro and the yen but was down against the New Zealand dollar following six straight weekly declines.

Investors expect the Fed to stay pat this month while speculation is rife that the BOJ will make some sort of change to its easing programme, though whether it would be major or minor is uncertain.

The Reserve Bank of New Zealand (RBNZ), which holds its policy meeting on Thursday, is likely to keep rates at 2 per cent.

The New Zealand dollar was trading slightly higher at US$0.7297 on expectations of a steady outcome.

"It feels like the bird will be tough to knock off its perch," said ANZ Senior Rates Strategist David Croy, referring to the kiwi dollar, so named after New Zealand's iconic flightless bird.

The kiwi has been super resilient in the face of two interest rates cuts this year thanks to carry trades where investors borrow in safer currencies such as the yen to invest in high-yielding, riskier assets.

A rising kiwi is putting downward pressure on inflation and complicating the RBNZ's monetary policy, despite strong growth in the economy.

With a rate cut unlikely until November and the market sceptical about the RBNZ's desire to cut aggressively, Mr Croy expects the currency to remain firm for a while yet.

New Zealand government bonds eased, sending yields 3.5 basis points higher at the long end.

Australian government bond futures dipped, with the three-year bond contract down two ticks at 98.39. The 10-year contract fell one tick to 97.8650.

REUTERS