The Australian and New Zealand dollars held hefty gains on Thursday after their U.S. counterpart was scuppered by a surprisingly dovish turn from the Federal Reserve, which also boosted bonds world wide.
The kiwi dollar got an extra lift when S&P Global Ratings affirmed New Zealand's credit ratings and lifted its outlook to positive, opening the door to a possible upgrade.
There was also relief when the latest surveys from China showed some improvement, with a measure of the services sector markedly stronger in January.
That left the kiwi NZD=D3 holding firm at $0.6900, having touched a two-month peak of $0.6924. It jumped 0.9 percent overnight to crack resistance around $0.6782.
The Aussie dollar AUD=D3 had levelled out at $0.7256, after climbing 1.3 percent on Wednesday. The rally also took out major chart resistance at $0.7235, which should now provide technical support.
The main gains came after the Fed dropped any reference to further rate increases in its latest policy statement, just a month after re-committing to more hikes.
"The language changes to the statement were very dovish," said Michelle Girard, chief U.S. economist at RBS. "The changes and the tone of the Fed Chair's press conference suggest additional rate hikes this year may no longer be the base case."
"It suggested no predisposition as to the direction of the next move in interest rates."
Short-term Treasury yields fell sharply in response, dragging the U.S. dollar down broadly. Australian bonds got a smaller boost, with three-year futures YTTc1 up 1.5 ticks at 98.275. The 10-year contract YTCc1 edged up 1 tick to 97.7700.
The local bond market had sold off on Wednesday when data showed inflation last quarter had not been as soft as some had wagered on, lengthening the odds on a cut in interest rates.
Futures
0#YIB: currently imply around a 54 percent chance of a quarter-point cut in the cash rate by year-end, compared with 70 percent before the data.The Reserve Bank of Australia (RBA) holds its first policy meeting of the year on Feb. 5 and there has been speculation it would also take a dovish turn, perhaps tempering a long-held view that the next move in rates would be upward.
Data on Thursday was too mixed to offer much guidance. Private-sector lending was again weak as banks tighten standards and an ongoing slide in home prices discourage investors.
Yet figures also showed a healthy rise in prices for Australia's major exports last quarter, which would have lifted company profits and tax receipts.
"Trade prices are important as they provide a partial reading on how strong income growth has been in the economy," said CBA economist Kristina Clifton. "We are likely to see solid nominal GDP growth in Q4."
