Reuters Australia

Aussie dollar shoots up on NZ$ after weak NZ GDP

Friday June 26, 11:53 AM

SYDNEY, June 26 (Reuters) - The Australian dollar shot up against the New Zealand dollar on Friday after data showed New Zealand's economy shrank 1 percent in the first quarter, stirring speculation that perhaps Kiwi rates may fall further.

* Although the growth contraction was in line with the Reserve Bank of New Zealand's (RBNZ) prediction, it was slightly worse than market forecasts for a 0.7 percent decline. * That encouraged talk the RBNZ remained under pressure to further cut rates from the record low of 2.5 percent. Still, many analysts think the RBNZ is reluctant to cut rates much further because because Kiwi rates need to be high enough to attract investors and fund the country's current account deficit.

* Aussie charged to as high as NZ$1.2523 AUDNZD=R, from NZ$1.2479 seen here late Thursday.

* Aussie's yield appeal is bolstered against the Kiwi dollar right now because Australian rates are higher at 3 percent.

* Aussie was steady on the U.S. dollar and yen at $0.8035 and 76.98 yen AUDJPY= respectively. It had traded at $0.7989 and 76.91 yen here late Thursday.

* A jump in U.S. stocks overnight had boosted the Aussie, as stock investors appeared to shrug off new signs of weakness in the U.S. job market. [ID:nN25259990]

* Japanese consumer price data out Friday showed core consumer prices down 1.1 percent, suggesting a deepening deflation in Japan, the top buyer of Australian exports.

* Australian bond futures rose, tracking gains in Treasuries, which got a lift from strong demand in an auction for new seven-year notes. [US/]

* Three-year bond futures YTTc1 rose 0.07 points at 95.16, while ten-year bond futures YTCc1 gained 0.10 point to 94.425.

* Rising short-term yields have flattened the local yield curve, with the spread of 10-year cash yields over three-year yields at 105 basis points, the narrowest since January.

* Some economists said rising local short-term yields reflected expectations of rate hikes, although they said such speculation may be fanciful since any recovery in economic growth is unlikely to be strong enough to justify higher rates. (Reporting by Koh Gui Qing)

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