WELLINGTON/SYDNEY: The New Zealand dollar held its ground on Thursday as investors shrugged off another warning from a dovish Reserve Bank of New Zealand that it would reconsider its steady policy if the currency remains so strong.
The Aussie was firm at $1.0373, holding gains after Fed Chairman Ben Bernanke said he would not hesitate to add more stimulus to the US economy if required.
Although there was no hint of imminent action, the comment was enough to maintain Wednesday's positive momentum following a batch of strong corporate results in the United States.
The Aussie was approaching key resistance around $1.0385/90, a recent triple top and $1.0392, the daily Kinjun line. That was a resilient performance given it hit a two-week trough of $1.0247 on Tuesday following soft inflation data.
The kiwi climbed back to $0.8162 after the RBNZ's policy statement was not as outright dovish as some investors had been positioned for, sparking a brief round of short-covering.
Still, the currency was meeting short-term technical resistance at $0.8160, its 200-hour moving average.
Traders expected the kiwi to stick to its $0.8100-$0.8200 rage of the past week or so, with offers around $0.8215 capping a significant climb and support around the 200-moving day average at $0.8090.
RBNZ Governor Alan Bollard again warned that the outlook for interest rates could be reassessed if the NZ currency remained so strong.
"Markets were clearly unimpressed by the threat," said RBC strategist Michael Turner.
The RBNZ's comment prompted some investors to consider the chance of an interest rate cut, though many economists still expected the next move to be upward. One forecast a hike as early as Sept.
"The statement certainly does reinforce the risk of a later start to OCR increases from our December expectation," said ASB economist Christina Leung.
The RBNZ held its benchmark interest rate at a record low 2.5 percent as expected.
Interest rate swaps fell, with the two-year yield down 5 basis points to 2.7400 percent, the lowest since Jan. 31. Short-term rates now imply a 20 percent chance of a rate cut in June.
New Zealand government bond prices rose, prodding yields down around 5 basis points across the curve. Ten-year yields dropped to 3.88 pct, down from a peak around 4.35 pct just a month ago.
The Antipodeans edged lower on the yen but still retained most of the gains made since Tuesday. The Aussie eased to 84.22 yen, but a fair way off a low of 82.82. Likewise for the kiwi which nudged lower to 66.20 yen, off a trough of 65.54.
Australian 10-year bond yields were hovering around 61 years lows at 3.725 percent. They touched 3.65 percent on Tuesday, the lowest since the early 1950s, as tame inflation sparked talk the Reserve Bank of Australia (RBA) had scope to ease not just once, but perhaps several times.
The central bank had already flagged it would consider cutting its 4.25 pct cash rate in May as long as inflation remain contained.
Interbank futures, which are fully priced for a cut of a quarter point next week, are now pricing a one-in-four chance of a half-point easing. In all, there are 105 basis points of cuts implied for the next 12 months.
"Part of the reason of the bond performance is because our cash rate is a lot higher than most high quality sovereign bonds," said Matthew Johnson, a senior economist at UBS.
With the cash rate having the room to decline significantly, Johnson anticipates Australian bonds to rally further.
"I don't think (10-year yields of) 3 percent is unreasonable in the near-term."
Australian debt futures firmed with the three-year contract up 0.01 points to 96.950, having jumped earlier this week to 97.030, its highest of 2012.
The 10-year contract added 0.005 points to 96.330, a whisker away from a record high of 96.420 on Tuesday.
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