The Australian dollar hopped to a one-month high on Wednesday as domestic growth numbers beat investors’ worst fears, forcing a round of short-covering among bears. The New Zealand dollar was up near three-month peaks underpinned by US dollar weakness and a strong auction result for the country’s main goods export earner, dairy. The Aussie firmed to $0.7540, from $0.7500, after government data showed the economy grew 0.3 percent in the first quarter and 1.7 percent for the year.
While a modest outcome it confounded speculation the economy might have contracted last quarter. “The market was positioned for a weaker number, so the result lifted the Australian dollar,” said Tapas Strickland, an economist at NAB.
“So overall, it is a soft number but not as soft as some had expected and there is less pressure on the Reserve Bank to ease.” Interbank futures duly slipped a touch as the market scaled back the chance of another rate cut from the Reserve Bank of Australia (RBA). The current pricing is for around a one-in-five chance of an easing by year end.
Just Tuesday the RBA conceded the economy had slowed in the first quarter but stuck by its prediction that growth would accelerate to around 3 percent over the next year or so. Analysts took that to mean the central bank would look past a weak number and keep interest rates steady at 1.5 percent, as it has done since August last year.
New Zealand’s kiwi got as far as $0.7026, the highest since late February, before fading to $0.7184 as the GDP data boosted the Aussie at the expense of its neighbour. The Australian dollar rose to NZ$1.0492, from NZ$1.0433. The kiwi had earlier got a lift when global dairy prices rose for the sixth auction in a row.
“The kiwi retains positive momentum, targeting the $0.7250 area…thanks to the falling U.S. dollar,” said Imre Speizer, currency strategist at Westpac, in a research note. New Zealand government bonds gained, sending yields 3 basis points lower at the long end of the curve.
Australian government bond futures dipped, with the three-year bond contract off 6 ticks at 98.260. The 10-year contract held steady at 98.6000.