Australia, NZ dollars calm, set to post weekly gains

[SYDNEY] The Australian and New Zealand dollars held steady, having proved resilient to broad US dollar strength on Friday with investors awaiting central bank policy reviews next week. Both currencies were on track for weekly gains.

The New Zealand dollar was the clear outperformer at US$0.6818, not far from this week's peak of US$0.6834, having powered up 1.8 per cent since Monday.

A modest recovery in dairy prices, signs of a slight pick- up in inflation, continuing rise in property prices have energised the kiwi and prompted economists at major banks to rescind calls for an easing by the Reserve Bank of New Zealand (RBNZ).

The RBNZ holds its monthly policy review on June 9 and it is likely to be a very close call as to whether the central bank would cut interest rates by 25 basis points from their current record low 2.25 per cent.

"It now looks as though the June decision will go down to the wire," said Westpac chief economist Dominick Stephens in a research statement, referring to the central bank's monetary policy decision.

Westpac and Bank of New Zealand have revised their forecasts and expect the central bank to stay pat next week. Markets are pricing only about a one-in-four chance.

New Zealand government bonds were mostly unchanged, sending yields 0.5 basis points lower at the short end of the curve and flat at the long tend of the curve.

Across the Tasman Sea, the Australian dollar held steady at US$0.7230, within reach of a peak of 73 US cents touched on Wednesday.

It has risen 0.7 per cent this week, following six weeks of losses, after data showing the Australian economy grew by a solid 1.1 per cent in the first quarter encouraged investors to scale back expectations for an interest rate cut.

The Reserve Bank of Australia (RBA) holds its policy review on June 7 and is widely expected to keep rates at an all-time low of 1.75 per cent. Markets, however, are giving an around 50-50 chance of a move by August, rising to 86 per cent by December.

The Antipodeans were nursing losses against a racy yen with the Aussie at 78.71 yen, pulling closer to this year's trough of 77.57. The kiwi stood at 74.21 yen, from a peak of 75.39 touched earlier in the week.

The next focus is on US non-farm payrolls due later on Friday. Market consensus suggests 164,000 jobs were created in May, but any surprise could add to or detract from the case for a Federal Reserve interest rate hike later this month or in July.

Australian government bond futures extended gains, with the three-year bond contract up two ticks at 98.410. The 10-year contract added 3.5 ticks to 97.7700, while the 20-year contract was 3.5 ticks higher to 97.1850.

REUTERS