The Australian dollar rebounded on Tuesday after the country's central bank held interest rates steady and sounded less dovish than many bears had been betting on, forcing a swift round of short covering.
The Aussie dollar AUD=D3 popped back up to $0.7255, having slipped as low as $0.7194 earlier following a disappointing report on retail sales. Resistance now lies around $0.7284.
The Reserve Bank of Australia (RBA) ended its first policy meeting of the year reiterating the standard line that further progress on unemployment and inflation was expected, even if it was likely to be gradual.
The central bank did trim its forecasts for economic growth and inflation, noting that some downside risks had increased both at home and abroad.
However, the RBA stopped well short of an explicit dovish shift in its policy bias as many speculators had wagered on. Some had thought it might choose to echo the U.S. Federal Reserve, which last week all but abandoned plans for more hikes.
Australian government bond futures dipped in response, with the three-year bond contract YTTc1 off 2.5 ticks at 98.240. The 10-year contract YTCc1 eased 2 ticks to 97.7500.
Futures markets
0#YIB: still imply around a 50-50 chance the RBA will have to cut its 1.5 percent cash rate by year end given the recent dismal run of domestic data.Retail sales figures out on Tuesday showed a 0.4 percent decline in December as shoppers cut back on household goods and clothing.
Inflation-adjusted sales grew a miserly 0.1 percent for the fourth quarter as a whole, pointing to another subdued contribution from consumption to economic growth.
"Retail is worth about a third of total household consumption, so the early indication is that total consumer spending growth will be soft in Q4, as it was in Q3," warned CBA senior economist Gareth Aird.
"Despite decent employment growth, a tightening labour market and a gradual lift in wages growth, spending growth has eased," he added, pointing a finger at falling home prices as one likely culprit for consumer caution.
The poor result overshadowed trade data showing Australia boasted its second-largest surplus on record in December at A$3.7 billion.
Much of the improvement was due to a steep 6 percent drop in imports, which also spoke of softness in domestic demand, though exports grew at a strong 16 percent compared to a year earlier.
The New Zealand dollar NZD=D3 was dragged higher by the Aussie, rising to $0.6899 from a trough at $0.6871.
The kiwi faces its own data test on Thursday when the labour report for the fourth quarter is released.
Economists polled by Reuters expected the unemployment rate to have edged up to 4.1 percent, from a decade-low of 3.9 percent.
Annual wage growth was forecast to pick up slightly to 2.0 percent, which could provide comfort for the Reserve Bank of New Zealand which is set to release its first monetary policy decision of the year next week.
New Zealand government bonds
0#NZTSY= eased, sending yields 1.5 basis points higher at the long end of the curve.
