New Zealand dollar hits 1-1/2 year high after RBNZ holds rates; A$ rises

SYDNEY (Reuters) – The New Zealand dollar jumped to more than 1-1/2 year highs on Wednesday and bond yields climbed as markets pared back the chance of negative interest rates in the country, while its Australian peer firmed slightly, too.

A New Zealand Dollar note is seen in this picture illustration June 2, 2017. REUTERS/Thomas White/Illustration

The New Zealand dollar NZD=D4 climbed to $0.6885, a level not seen since March 2019, after the country’s central bank launched a new funding facility and reiterated its commitment to keep the cash rate at 0.25% until March 2021.

At a news conference, Governor Adrian Orr said that it was “too early to tell” if the possibility of negative rates had now decreased.

Still, he left the door ajar for further stimulus given the unemployment rate was expected to rise from 5.3% now and inflation was projected to undershoot the RBNZ’s target range.

“The Reserve Bank did keep open the option for the cash rate to go negative eventually but we think the overall stance…suggests it is now far less certain of the efficacy of heading in this direction,” said Stephen Toplis, head of research at BNZ.

“The RBNZ still thinks the risks to the outlook are weighted to the downside but they clearly recognize that the economy is evolving better than they had anticipated.”

New Zealand government bonds <0#NZTSY=> were sold off with yields jumping about 13 basis points at the long-end of the curve and 10 basis point at the short-end.

The Australian dollar AUD=D4 flirted with key resistance at 73 U.S. cents. It was last up 0.25% to $0.7305.

The antipodean currencies have rallied in recent days as risk sentiment got a boost from the victory of Joe Biden in the U.S. presidential elections and on hopes for a coronavirus vaccine.

Also helping sentiment, domestic data has been solid.

Earlier, a gauge of Australian consumer sentiment jumped for a third straight month to a seven-year high as consumers became more optimistic about the economy with the coronavirus pandemic now under control.

“There has traditionally been a reasonably good long-term correlation between consumer sentiment and household consumption,” Citi economists wrote in a note.

“…the strong rise in sentiment in recent months is a good sign that spending growth will return,” they added. “More generally, much stronger recent soft data portends a further lift in other hard data in the near future.”

Australian government bond futures fell, with the three-year bond contract YTTc1 down 2 ticks at 99.805. The 10-year contract YTCc1 slipped 7 ticks to 99.01.

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