WELLINGTON/SYDNEY: The Australian dollar held its ground on Tuesday after the Reserve Bank of Australia's (RBA) said the currency was high historically, but refrained from actively talking it down as some market watchers had speculated.
The Aussie was a shade firmer at $0.9335, versus$0.9330 in early trade, having bounced from a two-month low of $0.9275 set last week.
It was, however, still stuck in a familiar $0.9200-$0.9500 band, a range it has been unable to escape since late March.
As expected, the central bank left its cash rate unchanged at a record low of 2.5 percent, marking a full year without a change, and reiterated its outlook was for a period of steady policy as the economy copes with a cooling mining boom.
"The statement is strictly neutral in tone," said Michael Blythe, chief economist at Commonwealth Bank of Australia.
"The debate will increasingly be about how long the period of stability can last. We recently shifted our rate-rise call from November to February," he said.
Some market watchers had anticipated the central bank would protest more loudly about the currency's strength given weakness in the price of iron ore, the country's biggest export earner.
The mineral has shed nearly 30 percent this year, but the Aussie was still up 4-1/2 cents. Debt market futures showed little reaction as investors had seen no chance of a cut this week, and scant prospect of a move for months to come.
Interbank futures imply a one-in-five chance of a cut by year end, before switching to an increasing chance of a hike in the second half of 2015.
Swap markets see rates steady on a 12-month horizon.
The Reserve Bank will release its quarterly statement on monetary policy on Friday with expectations it might trim its near-term inflation forecasts.
Also underpinning the Aussie was better-than-anticipated numbers for Australia's trade deficit, which narrowed to A$1.7 billion versus forecasts of A$1.9 billion.
Still, the outcome implied net exports took a slice out of growth, with the risk Australia could suffer its first contraction since early 2011 when massive flooding washed out activity across Queensland.
Support for the Aussie was found at $0.9307 with dealers citing buyers around $0.9300. Resistance starts at $0.9335/40.
Australian government bond futures edged up from recent multi-week lows, with the three-year bond contract up 2 ticks at 97.300. The 10-year contract added 2.5 ticks to 96.535.
The premium offered by Australian 10-year yields over three-year bonds neared its smallest in more than a year at 75 basis points.
It was at 135 basis points early in January.
The flattening of the curve reflects in part the steady rate outlook in Australia combined with receding expectations of an earlier start to a tightening cycle by the Federal Reserve.
The New Zealand dollar held steady at around $0.8518 , as it moved further from last week's near-two month low of $0.8462.
An analyst said investors had taken profit in the US dollar after last week's payrolls data, which had helped to lift the kiwi in a generally quiet market. Bank of New Zealand's Raiko Shareef said a further fall in prices at dairy giant Fonterra's auction might see the currency head towards strong support at $0.8450.
"The whole way below there will be very hard to break, there's quite a lot of technical support.
I suspect there's quite a few bids scattered through that area," Shareef said.
The other major local test comes from second quarter labour market data on Wednesday.
Unemployment was seen edging lower to 5.8 percent, while wage growth stayed restrained.
New Zealand government bonds were a touch firmer, sending yields half a tick lower.
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