SYDNEY/WELLINGTON: The Australian dollar had a subdued tone on Wednesday after surprisingly weak retail sales data prompted markets to slightly narrow the odds of further interest rate cuts, while the New Zealand dollar held firm. The Aussie initially climbed as far as $1.5023 before easing back to $1.0495 after data showed retail sales fell 0.1 pct in November, confounding forecasts of a 0.3 percent rise.
The weak reading caused swap markets to increase the probability of a quarter point cut to a record low of 2.75 percent in February to around 40 percent from 35 percent.
"The risk is the RBA cuts earlier and deeper than our current cash rate forecast of one more cut in May," said Rob Henderson, chief economist at National Australia Bank.
The Reserve Bank of Australia (RBA) eased by 125 basis points last year to lessen a painful strong currency and stimulate a slowing economy, while inflation remains at bay.
Henderson said there was little sign the rate cuts so far were offsetting the negative impact of the high Australian dollar and a decline in the country's terms of trade.
The Aussie nudged down 0.1 percent on the day with decent buying interest seen at $1.0450. Resistance was found at $1.0530 where traders cited stops.
Its downside, however, was limited by a spike in iron ore prices, a major Australian export, which climbed a further 3 percent to its highest in 15 months at $158.50 a tonne.
The New Zealand dollar held firm at $0.8380, from$0.8367 early, helped by kiwi buying in the crosses against the yen and the Aussie.
"Kiwi is having a strong day, but still I expect little struggle to get much through $0.8400 to $0.8425," Tim Kelleher, head of institutional FX sales at ASB.
"There seems to be some real money flows, some early investments from offshore into the new year...and more offshore than domestic," he said, adding that buyers would line up towards $0.8350.
The kiwi currency shrugged off a drop in new building approvals, as the underlying trend remained encouraging.
The Antipodeans regained momentum on the yen, with the Aussie adding half a yen to 91.72, getting closer to a four-year peak of 92.83 struck on Monday.
Gains were even larger for the kiwi. It powered up 0.7 percent to 73.44 yen, a whisker away from 73.54 struck this week, its highest since late 2008.
Both Aussie and kiwi have gained nearly 10 percent since November on speculation Japan will embark on more yen-negative monetary stimulus measures to revive an ailing economy.
New Zealand government bonds were firmer with yields nudging up to 5.5 basis points lower across the curve.
Australian government bond futures rose, with the three-year contract up 0.04 points at 97.220. The 10-year contract added 0.015 points to 96.615, leading to a bullish steepening of the yield curve.
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