The Australian dollar powered up on Wednesday after economic growth easily beat expectations, prompting investors to further scale back expectations for an interest rate cut soon. The Australian dollar climbed as far as $0.7294 from $0.7233 in early trade and pulling further away from a three-month trough touched last week. It was last at $0.7284 with resistance around $0.7325. Australia's economy grew by 1.1 percent in the first quarter, marking a remarkable 25 years without a recession, data showed earlier in the day.
Annual growth of 3.1 percent far exceeded most developed nations including the United States, which last week reported annualised growth of 0.8 percent in the first quarter. "There is a growing disconnect between economic activity - which is improving - and inflation, which remains below the Reserve Bank of Australia (RBA)'s comfort level," said Aberdeen Asset Management Senior Investment Manager Jasmin Argyrou. Interbank futures imply a 50-50 chance of a cut to 1.5 percent by August, from 60 percent on Tuesday, and are no longer fully priced for a move over the next 18 months.
The central bank holds its monthly policy review on June 7 and the market is widely expecting rates to be on hold following last month's cut. Australian government bond futures fell, with the three-year bond contract off 3 ticks at 98.350, having touched its lowest in one-month. The 10-year contract shed 2.5 ticks to 97.6750, while the 20-year contract was 1 tick lower at 97.0900. The New Zealand dollar was trading higher at US $0.6785 after getting a lift from better-than-expected first quarter terms of trade data.