By Swati Pandey and Charlotte Greenfield
SYDNEY/WELLINGTON, Feb 7 (Reuters) - The Australian dollar rebounded on Tuesday after the country's central bank sounded upbeat about economic growth and inflation prospects at its first policy meeting of the year.
The Australian dollar AUD=D4 climbed 0.21 percent to $0.7676, not far from a three-month peak touched last week, from an earlier low of $0.7633.
The Reserve Bank of Australia (RBA) held interest rates at 1.5 percent on Tuesday, as expected, but said it sees consumer price inflation in 2017 to be above 2 percent and within the central bank's 2-3 percent inflation target band for the first time since the third quarter of 2014. Philip Lowe also played down recent soft economic data, expecting growth around 3 percent over the next couple of years. The commentary cemented views that further cuts in interest rates were unlikely in the near-term.
Indeed, investors scaled back expectations of interest rate cuts, with the futures market 0#YIB: seeing only a 16 percent chance of a move lower by June.
"Governor Lowe took this opportunity to reiterate that the RBA maintains its inflation forecasts and still expects growth to accelerate," said Greg McKenna, chief market strategist at AxiTrader.
"That's pretty upbeat and looks like the RBA has retained its late 2016 ebullience."
Data on Australia's gross domestic product for the December quarter is due March 1 and economists generally expect the pace of growth to have rebounded after a shock contraction in the July-September period.
Figures out last week showed Australia posted a record trade surplus in December while measures of business confidence and conditions had bounced too. data on Monday showed retailers enjoyed their best quarter of sales in two years. Aussie did well against other currencies, rising 0.6 percent on the euro EURAUD=R , 0.2 percent on the pound GBPAUD=R and 0.3 percent against the yen AUDJPY=R .
Across the Tasman Sea, the New Zealand dollar NZD=D4 climbed 0.6 percent to a 12-week high as investors were heartened by a survey showing inflation expectations had jumped.
The Kiwi rose to $0.7367, from $0.7318, after the Reserve Bank of New Zealand (RBNZ) found two-year inflation expectations rose to 1.92 percent from 1.68 percent.
Earlier, RBNZ governor Graeme Wheeler announced he would step down when his first term ends in September. are now waiting for the RBNZ's monetary policy decision on Thursday when all economists in a Reuters poll predicted the bank would keep rates on hold. Zealand government bonds 0#NZTSY= gained, sending yields 8.5 basis points lower at the long end of the curve.
Australian government bond futures rose, with the three-year bond contract YTTc1 up 3 ticks at 98.05. The 10-year contract YTCc1 rose 6.5 ticks to 97.27. (Editing by Sam Holmes)