SYDNEY/WELLINGTON: The Australian dollar held steady on Thursday as the market took a guarded reaction to news the country's prime minister was facing a leadership challenge from within her own party, which could have an impact on government policy.
Prime Minister Julia Gillard called a ballot to resolve months of slipping polls and internal tensions that put her minority Labor government on course to be swept away at September elections.
The Aussie showed little initial reaction at $1.0379 , having earlier nudged higher on a surprisingly upbeat report on manufacturing in China, Australia's biggest export market.
The HSBC Purchasing Managers' Index for March revived to 51.7 in March from 50.4 in February, but remained below a two-year high of 52.3 reached at the beginning of the year.
Markets tend not to react to political change in Australia as both main parties are seen as middle of the road on economic policy, favouring balanced budgets and fiscal rectitude.
Analysts said the market could become unsettled if it looked like government policy might shift after the challenge. A new leader might decide to tighten or relax fiscal settings, for instance.
Such a change would have implications for the Reserve Bank of Australia (RBA) given it has been assuming there would be a significant fiscal tightening this year and next.
For now, the market continues to price in around a 50-50 chance of one more cut in the RBA's 3 percent cash rate Interbank futures remained soft on the day, largely due to the Chinese data.
The kiwi dollar was firm around $0.8272, after a surprisingly strong reading of New Zealand's GDP. The economy grew 1.5 pct in the December quarter, the fastest pace in three years, beating forecasts of 0.9 pct.
Bank bill futures slip as much as 7 basis points while financial markets narrow the odds of a rate hike, giving 21 basis points of a tightening over the next 12 months, from 13 bps.
Australian government debt futures had trimmed recent hefty gains. The three-year bond contract was down 0.080 points at 96.960, while the 10-year contract eased 0.060 points to 96.415.
New Zealand government bond prices fall, sending yields 6.5 basis points higher along the curve.
Kiwi at $0.8262, from $0.8232 early. Major resistance seen at $0.8325/50 and support at the session's low of $0.8210, Wednesday's low. Kiwi has come under pressure since scaling a 17-month peak of $0.8534 last month.
Markets focused on the first public address of new BOJ governor, Haruhiko Kuroda, later on Thursday. The central bank chief is expected to announce a more aggressive easing plan which could include buying longer term JGBs and an early start to open-ended asset buying.
Antipodeans close in on peaks not seen since mid-2008 vs the yen with the Aussie at 99.56, having gained more than 1 pct overnight. It charged to 99.99 last week and a break above would open the way to 104.5, the 2008 high.
Kiwi at 79.27, having gained 0.5 pct so far this week. It rose to 79.91 last month, its highest since July 2008.
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