Australia, NZ dollars extend gains after jobs, GDP and Fed

[SYDNEY] The Australian dollar scaled an eight-month peak and its New Zealand counterpart rose sharply on Thursday in the wake of solid domestic data and dovish comments from the US Federal Reserve.

The New Zealand dollar was a clear outperformer with a leap of one-and-a-half cents to US$0.6746. Resistance was found at US$0.6809, then US$0.6820.

The kiwi even recouped losses from last week's surprise interest rate cut by the Reserve Bank of New Zealand (RBNZ).

The kiwi and other commodity-linked currencies had already been trading higher after the Fed on Wednesday reduced its expectations for interest rate hikes in 2016 to two from four, sending the US dollar lower.

Helping the kiwi was better-than-expected economic growth at home with gross domestic product rising 0.9 per cent in the fourth quarter and 2.3 per cent on the year.

Yet, the solid headline masked a sharp fall in prices which underlined the danger of disinflation in New Zealand.

"The surprisingly strong growth will not prevent the RBNZ from cutting interest rates from 2.25 per cent to 2 per cent in the coming months," said Paul Dales, chief Australia and New Zealand economist for Capital Economics.

The Australian dollar rose to US$0.7594, from US$0.7464 late on Wednesday. Heavy selling of the US dollar in Asia briefly sent it to US$0.7620, the highest since July last year.

A sustained break of a major barrier at 76 US cents could see a test of the June 2015 peak of US$0.7849.

A surprise drop in Australian unemployment to 5.8 per cent helped the Aussie as it seemed to lessen the risk of cut in rates for the next month or so.

Interbank futures still imply around a 50-50 chance of a rate cut by August, in part because policy steps by other major central banks were pushing the local dollar higher in a way that could prove a brake on exports.

A rising Aussie, up 6.2 per cent so far this month, is unlikely to be welcome by the Reserve Bank of Australia.

"Any further strength in the currency may result in policymakers "jawboning" - talking down the Aussie dollar," said Savanth Sebastian, an economist at CommSec who sees a steady rate outlook in coming months.

Australian government bond futures rose in the wake of the Fed's dovish turn, with the three-year bond contract up 6 ticks to 98.060.

The 10-year contract added 5.5 ticks to 97.4200, while the 20-year contract gained 6 ticks to 96.8800.

New Zealand government bonds gained, sending yields between three and five basis points lower across the curve.

REUTERS