NZ dollar bounces after RBNZ hold, Australia dollar struggling

[SYDNEY] The New Zealand dollar bounced on Thursday after the Reserve Bank of New Zealand (RBNZ) wrongfooted bears by skipping a chance to cut interest rates, while its Australian counterpart was nursing hefty losses.

The New Zealand dollar jumped half cent to US$0.6908 after rates were held at 2.25 per cent. It rose as high as US$0.6940 at one stage compared to a trough of US$0.6808 on Wednesday. It was also pulling closer to a 10-month peak of US$0.7055 touched last week.

"Today was a missed opportunity to reduce the upward pressure on the NZD," said Jarrod Kerr, a senior interest rate strategist at CBA, noting the kiwi had climbed three cents on its Australian counterpart in 24 hours.

Market pricing still implies a 62 per cent chance of a cut at the next policy meeting on June 9.

"We expect a rate cut in June and August, and possibly again in September," said Mr Kerr.

New Zealand government bonds chose to follow a rally in US Treasuries after the Federal Reserve sounded in no rush to hike after its policy meeting. Yields were as much as 5.5 basis points lower at the long end.

The Australian dollar was steady at US$0.7588, having slumped 2 per cent on Wednesday in the biggest one-day drop in eight months. Support was found at US$0.7548 and US$0.7526.

Since touching a 10-month peak of US$0.7836 one week ago, the Aussie has dropped 2-1/2 cents.

It was knocked back after disturbingly soft inflation data revived expectations of a cut in rates by the Reserve Bank of Australia (RBA).

Interbank futures imply a 58 per cent chance of an easing to a record low of 1.75 per cent at the RBA's policy meeting next week, from 12 per cent earlier in the week.

However, the vast majority of economists still forecast the central bank to keep rates steady on May 3.

The Aussie skidded two yen to 82.68 yen after the Bank of Japan disappointed bears who had wagered on further policy stimulus. The yen rallied broadly, with the Aussie down 4 per cent so far this week.

It touched its lowest this year against its Canadian counterpart.

The marked slowdown in inflation boosted Australian government bond futures, with the three-year contract up seven ticks at 98.140.

The 10-year contract jumped 8.5 ticks to 97.4750 in a bullish flattening of the curve. The 20-year contract also rose 8.5 ticks to 96.9000.

REUTERS