SYDNEY: The Australian dollar pared losses on Tuesday after the country's central bank stuck with its upbeat outlook for the economy despite a run of softer data recently, though investors still suspect it will have to cut rates eventually.
The currency had been weighed by a disappointing survey on the Chinese service sector, which offset more pledges from Beijing of support for the economy from tax cuts to infrastructure spending.
The Aussie was down 0.25 percent for the day so far at $0.7075, but survived a brush with major chart support near$0.7054. Resistance remains tough around $0.7120.
The New Zealand dollar had eased 0.4 percent to $0.6791, in part as the market had second thoughts about the extent of progress being made in Sino-U.S. trade talks.
Speculators have been shorting the Aussie on wagers the gross domestic product report for the December quarter due on Wednesday would surprise on the downside.
Analysts have been tipping meagre growth of 0.3 percent in the quarter, with a risk of an even slower outcome.
Data out on Tuesday failed to resolve the uncertainty as government spending added to growth even as net exports subtracted.
The Reserve Bank of Australia (RBA) ended its monthly policy meeting by acknowledging the slowdown but stayed doggedly optimistic on the outlook.
"The central scenario is still for the Australian economy to grow by around 3 percent this year," said RBA Governor Philip Lowe, after keeping rates unchanged at 1.5 percent.
Investors are more sceptical and futures imply around an 86 percent chance of a quarter-point cut by year end.
Lowe gives a speech on housing and the economy on Wednesday and could offer more detail on the discussion over policy, possibly re-stating that the board saw no strong case for a move on rates.
"The familiar forecasts of 3 percent GDP growth and 4.75 percent unemployment rate implied that a rate cut is not on the agenda any time soon," said Westpac's head of financial market strategy, Robert Rennie.
"The AUD is in the lower half of our fair value model range, with a midpoint around $0.73 and a range of roughly $0.70-0.76," he added. "It's commodity price support implies that it should be trading higher and near term, we expect dips to the $0.7050/60 area to continue to draw buyers."
Australian government bond futures edged higher, with the three-year bond contract up 2 ticks at 98.320. The 10-year contract firmed 3.5 ticks to 97.8400.
New Zealand government bonds also gained, nudging yields down around 2 basis points.
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