[SYDNEY] The Australian dollar staged a broad rally on Wednesday, while debt futures fell further after the economy grew at a much faster rate than expected, prompting markets to mark down the risk of a further cut in interest rates.
The Aussie gained about half a US cent to reach a high of US$0.7236 on data showing the economy unexpectedly sped up to an annual pace of 3.0 per cent in the December quarter. Market consensus was for a steady growth rate of 2.5 per cent.
It was last at $0.7232, up 0.8 per cent on the day. The Aussie reached a one-month high of 82.57 yen, while the euro slid towards A$1.5000 - a low not seen since early January. Versus its New Zealand peer, the Aussie scaled a one-month peak of NZ$1.0901.
"Today's GDP results confirm the resilience of the Australian economy, thanks to a rebalancing of activity away from mining investment into the services sectors," said Jasmin Argyrou, senior investment manager at Aberdeen Asset Management.
"Importantly, they corroborate the good employment data released last year. As a consequence, we expect the RBA will leave the cash rate at 2 per cent for at least the remainder of this year." Interbank rate futures 0#YIB: fell with the June contract sliding by the most to 98.150.
The implied yield rose to 1.85 per cent, suggesting the market is giving a 60 per cent chance of a quarter point cut by mid-year, down from nearly 100 per cent a few weeks ago.
Bond futures, already under pressure from a negative US lead, fell further. The three-year contract lost 12 ticks to 98.190 and the 10-year contract shed 11 ticks to 97.535.
Encouraging US data had sparked a selloff in US Treasuries overnight.
The kiwi had a less eventful session. It was little changed on the greenback at US$0.6636, having eased back from a session high of US$0.6663.
It caught an early boost from a slight improvement in global dairy prices at a key auction overnight.
OM Financial Private Client Manager Stuart Ive said the 5.5 per cent rise in whole milk powder prices was not necessarily the start of an uptrend "as the world remains awash with product."
Also following a negative US lead, New Zealand government bonds eased, sending yields 3.5 basis points higher at the short end and 8 basis points higher at the long end.
Traders will no doubt adjust their positions in the run up to the March 10 policy review by the Reserve Bank of New Zealand. At the moment, the market is giving a one-in-three chance of a rate cut.