The Australian and New Zealand dollars inched higher on Thursday, benefiting from weakness in the US dollar after the Federal Reserve stopped short of signalling a near-term rate rise. The Australian dollar climbed 0.27 percent to $0.7512, staying above key resistance at 75 cents. It is already up about 0.8 percent in July, a concern for the Reserve Bank of Australia which wants to restrain the buoyant currency.
That resilience is weighing on already low inflation and could prompt the central bank to cut interest rates at its policy meeting next week. The market is pricing around a 58 percent probability of a cut to 1.5 percent. The headline CPI index rose just 1.0 percent in the year to June, while key measures of underlying inflation held at 1.5 percent, all well below the RBA target band of 2 to 3 percent.
The New Zealand dollar bounced on Thursday after falling for two consecutive sessions. It was up 0.4 percent to 0.7106 in early afternoon trading. "Kiwi remains fairly well bid despite the Fed's upbeat assessment of the US economy," said ANZ Senior Rates Strategist David Croy. New Zealand government bonds gained, sending yields around 2 bps lower across the curve.
Australian government bond futures climbed in line with US Treasuries and in anticipation of a possible easing at home. The three-year bond contract added 5 ticks to 98.580, while the 10-year contract rose 8 ticks to a three-week top of 98.120. Yet Australian bond yields will still be attractive given most other major central banks are expected to ease further in coming months, limiting any losses for the Aussie.
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