The Australian and New Zealand dollars held their ground in subdued trade on Wednesday as most of Asia was shut for a holiday, even after Chinese data added to signs of cooling growth in the world's second biggest economy.
With many centres in Europe closed as well for the May 1 Labour Day holiday and key events including policy decisions by the Federal Reserve and European Central Bank due in the next 48 hours, nobody wanted to take big positions.
That saw the Aussie drift in a slim $1.0364/82 range, not far off a two-week high of $1.0386 set overnight. Investors were betting the Fed will to recommit to its aggressive easing programme, with a chance of expanding it even. "The FOMC is likely to acknowledge the weakness in the labour market data since the last meeting and the continued decline in underlying inflation," Barclays Capital analysts Ajay Rajadhyaksha and Dean Maki wrote in a note.
"Recent FOMC meetings have focused on when to taper asset purchases, but given the recent data, attention may now shift to the potential for further accommodation." That could keep the greenback under pressure, helping the Aussie retest resistance near $1.0400, a level representing the 50 percent retracement of its April 11-23 decline. In late trade, the Aussie was little changed on the day at $1.0369. It briefly shed a few pips after a report showed growth in China's vast manufacturing sector slowed in April, confirming a preliminary survey by HSBC.
The New Zealand dollar traded at $0.8580, also locked in a tight range and holding near a two-week high of $0.8587 touched on Tuesday. The market was also waiting for a policy decision by the ECB, which is likely to cut its main euro zone interest rate on Thursday as the bloc's economy has weakened further.
Such an outcome should further lift the kiwi, traders said. It has outperformed many major currencies on the view that its relatively strong economy will require interest rates to rise in the coming year, which would widen its yield advantage against a host of other currencies. Offshore demand for New Zealand assets has helped drive yields on 10-year government bonds down to around 3.17 percent, its lowest since 1985. The appetite for Australian government bonds has also been solid, taking the 10-year yield to 3.11 percent. It recently plumbed 3.09 percent, reaching lows not seen since November. Trading on the day, however, was lacklustre with the three-year bond futures contract flat at 97.450, while the 10-year contract was 0.005 points lower at 96.910.