The Australian dollar held its ground on Wednesday as the market took comfort in data showing the economy grew as expected last quarter when the risk had been for a softer outcome. The Aussie nudged up to $0.7824, from a session low of $0.7795, after figures showed gross domestic produce rose a moderate 0.5 percent in the fourth quarter for an annual rate of 2.5 percent.
The Aussie had climbed as far as $0.7845 on Tuesday after the Reserve Bank of Australia wrongfooted some investors by not cutting interest rates. "A 2.5 percent rate of growth is well below any reasonable estimate of potential," said Michael Turner, a strategist at RBCCM. "The output gap continues to grow, then, and we have a continued upward drift in the unemployment rate to show for it."
The New Zealand dollar traded at $0.7555 after rising as high as $0.7573 in offshore trade following a gain in global dairy prices at the latest auction. The kiwi has largely held to a $0.7500-$0.7600 range in the past few weeks, thanks in large part to an attractive interest rate premium and a steady policy outlook from the Reserve Bank of New Zealand.
"Over the next few months and ahead of next week's RBNZ meeting, our sense is that the NZD will remain a difficult currency to short," J.P. Morgan analysts said in a note, adding that the possibility of higher US rates was largely priced into the kiwi. The kiwi remained on the back foot against the Aussie which traded at NZ$1.0348, after touching NZ$1.0400 in the wake of Tuesday's RBA decision. New Zealand government bonds fell, pushing yields as much as 5 basis points higher at the long end of the curve. Australian bond futures followed US Treasuries lower, with the three-year contract off 4 ticks at 98.110. The 10-year contract slipped 7 ticks to 97.4200.
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