New Zealand dollar on the skids on dovish RBNZ, Aussie near three-month peaks

The New Zealand dollar fell sharply on Thursday following a dovish central bank statement, in contrast to the Australian dollar which held near three-month highs on broad US dollar weakness. The kiwi dropped 0.9 percent on the day to $0.7612, after the Reserve Bank of New Zealand (RBNZ) kept the cash rate at 3.5 percent but surprised some by saying it could cut interest rates if domestic demand weakened and inflation pressures fell.
"The RBNZ ruled out the risk of higher rates, noting that it "expects to keep monetary policy stimulatory, and is not currently considering any increase in interest rates"," said Kieran Davies, an economist at Barclays, penciling in a rate cut in June. Adding to the kiwi's trials, dairy giant Fonterra cut its forecast payout to suppliers to NZ$4.50 a kilo of milk solids from NZ$4.70, citing volatile dairy prices and oversupply.
Support for the kiwi was seen at $0.7550 with resistance at $0.7650. Still, the kiwi, which touched a three-month peak of $0.7744 on Wednesday, was on track to post a 2 percent increase for the month. The New Zealand dollar fell 0.6 percent against its Aussie counterpart and skidded to seven-week lows on the euro and pound. Across the Tasman Sea, the Australian dollar ran into profit-taking to be at $0.7989, having scaled a three-month peak of $0.8077 on Thursday. Resistance was found at $0.8040.
It is up 5 percent so far this month and if sustained, it would be the largest increase in three years. Aussie strength was largely a result of investors exiting crowded bullish USD positions as markets pushed back expectations of the start of the interest rate tightening cycle in the United States.
Also underpinning were investors trimming wagers on an imminent easing by the Reserve Bank of Australia (RBA). The Aussie shed 0.4 percent against the yen, having nearly reached 96 yen overnight, its highest since January, while the euro staged a reversal to A$1.3917, from a two-year low of A$1.3666 set in the last session. New Zealand interest rate futures gained as much as five ticks after the RBNZ statement, while government bonds were lower, sending yields as much as 5.5 basis points higher.
Australian government bond futures fell, with the three-year bond contract off 2 ticks at 98.050. The 10-year contract was down 8 ticks to 97.3250, leading to a bearish steepening of the curve. Yields on three-year cash bond rose to 2.03 percent, a level not seen since early February. They fell as far as 1.67 percent earlier this month.