Australia dollar inches up on RBA comments, NZD lifted by dairy
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By Cecile Lefort and Naomi Tajitsu
SYDNEY/WELLINGTON, Dec 18 (Reuters) - The Australian dollar found its footing against the U.S. dollar on Wednesday but struck a fresh four-year low against the euro, with investors waiting anxiously to see if the U.S. Federal Reserve will start unwinding its massive stimulus.
The Aussie inched up to $0.8922, from $0.8896 in early trade, after comments from Australia's central bank chief in semiannual parliamentary testimony caused a short squeeze.
Reserve Bank of Australia Governor Glenn Stevens hinted there was no pressing need to cut interest rates further in the near term, saying low borrowing costs were working to support the economy.
'The only way the Aussie was going to fall was if investors had heard something new but we didn't,' said David Scutt, a trader at Arab Bank Australia.
'If the RBA was going to cut again, it would be a reluctant cut. It looks like this is the bottom of the cycle,' he added.
A majority of analysts expect the RBA to hold rates steady at a record low of 2.5 percent for the coming year, while interbank futures imply only a 50-50 chance of any further cuts.
The Aussie fell as deep as $0.8882 overnight, its lowest in nearly five months, pulling closer to this year's trough of $0.8848 set in August.
Resistance was seen around this week's peak at $0.8970. A breach of strong support at $0.8848 could see a run all the way to $0.8500, a level that would please the RBA, which has long complained about the damaging impact of a high currency on the local economy.
The euro continued scaling fresh highs against the Aussie. It rose as far as A$1.5480, a level not seen since February 2010. It has gained an eye-watering 22 percent this year.
All eyes are on the results of the Fed's policy meeting due at 1900 GMT, to be followed by a news conference by Chairman Ben Bernanke at 1930 GMT. Investors are hoping for some clarity as to when the central bank will begin trimming its stimulus.
A steady run of firm U.S. economic data has raised speculation that the Fed could start reducing its bond buying this week, though a majority of investors still think stimulus-tapering will happen early next year.
DAIRY PRICES
The New Zealand dollar rose to $0.8272, from $0.8256 in early trade, supported by a rise in global dairy prices at the latest fortnightly auction.
Against the Aussie the kiwi scaled a five-year high around NZ$1.0750.
Dairy prices have climbed 51 percent over the past year, showering cash on the world's largest dairy exporting nation.
The government on Tuesday issued rosy forecasts for economic growth and the country's fiscal position, which contrasted sharply with Australia's forecast for a widening budget deficit as its economy weakens.
The stark difference between a strengthening New Zealand economy, which is expected to prompt a series of interest rate rises next year, and tepid Australian growth has been a main driver of the Aussie's 14 percent drop versus the kiwi.
But gains have been limited this week, given that much of New Zealand's economic strength has been priced into the kiwi.
'A lot of the NZ 'good news' story is now well known. In addition, heading into tonight's US Fed meeting, the market is likely reticent' to take on additional risk, Bank of New Zealand analysts said in a note.
Technical support for the kiwi was seen around $0.8260, the 38.2 percent retracement of the kiwi's slide in October-November, while offers were suspected above $0.8300.
Data showing a widely expected increase in the country's current account deficit had limited impact on the kiwi.
New Zealand government bonds extended gains, knocking the yield on 2023 bonds 10.5 basis points lower.
The yield has retreated to 4.76 percent from a two-year high of 4.880 percent hit earlier this week on expectations that the government's plan to reduce debt issuance in the coming months will lead to a supply shortage just as overseas demand increases at the start of the new year.
Australian government bond futures were mixed with the three-year bond contract up 1 tick at 97.050, having touched 97.090, its highest since early October. The 10-year contract lost 1 tick to 95.800, with the yield curve steepening.
The premium offered by Australian 10-year yields over three-year yields has been widening for the past two months and now stands at 134 basis points, compared with a low of 96 basis points in October.
(Editing by Chris Gallagher) Keywords: MARKETS AUSTRALIA/FOREX
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