SYDNEY/WELLINGTON: The Australian and New Zealand dollars regained some ground on Thursday after the Reserve Bank of New Zealand sounded less dovish than some had wagered on, while the US dollar suffered a shakeout of long positions.
The kiwi surged nearly 2 percent to $0.7850 after the Reserve Bank of New Zealand (RBNZ) said "some further increase in the cash rate is expected to be required at a later stage" to return rates to a neutral level.
There had been speculation the central bank would shift to a more neutral stance given falling prices for dairy exports and restrained inflation, both at home and globally.
Debt markets, however, were unfazed as investors still assumed any hike in rates was a distant prospect. Government bond yields dipped as much as 4 basis points, while rate futures edged higher.
The Aussie jumped as far as $0.8378, before edging back to $0.8340.
It was still up 0.3 percent on the day and pulling away from a four-year low of $0.8223 set on Tuesday. Resistance was seen at $0.8381.
It got a brief lift after data showed employment rose 42,700 in November, handily topping forecasts of a 15,000 increase.
However, the jobless rate also edged up to a decade-high of 6.3 percent.
"The creep higher in the unemployment rate is broadly consistent with sub trend growth and likely to keep the RBA (Reserve Bank of Australia) on hold for the foreseeable future with the risk of further cuts if this trend accelerates," said Su-Lin Ong, an economist at RBC Capital Markets.
Interbank futures barely budged as the market continued to wager on at least one rate cut from the Reserve Bank of Australia (RBA) mostly due to sliding commodity prices and a slowdown in China, Australia's top export market.
Australian government bond futures jumped to two-year peaks, with the three-year bond contract up 3 ticks at 97.765.
The 10-year contract added 6.75 ticks to 97.1150, in a bullish flattening of the curve.
A diverging interest rate outlook for Australia and the United States shrank the spread between their 10-year bond yields to its smallest since 2006.
Yields on Australian debt were just 72 basis points above Treasuries, compared to 112 bps last month.
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