The New Zealand dollar came off a 2-1/2 week top on Wednesday after the country's central bank sounded surprisingly relaxed about the housing market as it loosened lending restrictions, while the Australian dollar was stuck near five-month lows. The kiwi dollar initially popped up to $0.6930 as traders wagered the easing of loan-to-value restrictions by the Reserve Bank of New Zealand (RBNZ) could boost house prices and spark inflation.
But the currency soon slipped to $0.6890, drifting further away from Tuesday's $0.6945, the highest since Nov. 13. "There was some knee-jerk reaction in the currency because generally people thought the restrictions were removed earlier than many had anticipated," said Nick Tufley, chief economist at ASB Bank.
"But we're not likely to see inflation outlook shifting in a material way. The RBNZ is only comfortable in lifting the LVR restriction because it is confident the housing market will still remain muted." Tufley said the implications for interest rates are "pretty limited", adding that the RBNZ was likely to keep rates at a record low 1.75 percent for a long time.
Across the Tasman Sea, the Australian dollar paused after three days of losses to linger around $0.7595. That was not far from last week's $0.7532, the lowest since mid-2017. The spread between Australian government two-year debt over US notes has turned negative, from a premium of as much as 60 basis points in September. The US dollar has fared better this week than the past three, led by stronger economic data.
New Zealand government bonds gained, sending yields about 3 basis points lower across the long-end and 2 basis points lower at the short-end of the curve. Australian government bond futures were mixed, with the three-year bond contract up 1 tick at 98.100. The 10-year contract was flat at 97.490.