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UPDATE 1-Australia and NZ dollars rally on yield demand, RBA on hold

Published 01/12/2015, 03:54 pm
Updated 01/12/2015, 04:00 pm
UPDATE 1-Australia and NZ dollars rally on yield demand, RBA on hold
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(Adds comments after RBA's policy meeting)

By Cecile Lefort and Rebecca Howard

SYDNEY/WELLINGTON, Dec 1 (Reuters) - The Australian and New Zealand dollars rallied to multi-week highs against the U.S. dollar, yen and euro on Tuesday, as super loose monetary policies in Europe and Japan underpinned demand for carry trades.

The Australian dollar AUD=D4 gained half a cent to $0.7284, its highest since late October, to last trade at $0.7266. Major resistance was found just under 73 cents, the 76.4 percent retracement of the October-November fall.

The Aussie was underpinned after upbeat domestic data reinforced the outlook for steady rates and burnished its reputation as a relatively high-yielding asset.

The euro skidded to five-month lows against the Aussie EURAUD=R on expectations of looming policy easing by the European Central Bank. It tumbled 5.2 percent in November, the largest monthly drop in 16 years.

The Aussie also powered up to 89.47 yen AUDJPY=R , its highest since August, on growing expectations the Bank of Japan may have to inject more stimulus.

This is in contrast to the Reserve Bank of Australia (RBA) which kept the cash rate at 2.0 percent for a seventh month, citing a gradual improvement in conditions in non-mining sectors. urn:newsml:reuters.com:*:nL3N13Q1DN

While the central bank seemed in no rush to cut again, it noted there was scope for further easing if needed.

Interbank futures pricing 0#YIB: implies a 38 percent chance of a move by April, while half of economists polled by Reuters think rates could be cut again next year.

"Certainly if there is to be a move over the next six months it will be down rather than up," said Bill Evans, chief economist at Westpac Bank.

The New Zealand dollar powered up to a one-month peak of $0.6647, from $0.6578 in early trade, to last trade at $0.6625. It also climbed to six-month highs versus the euro EURNZD=R and a one-month peak versus the yen. NZDJPY=R

Underpinning the kiwi were expectations that dairy prices would rise at a global auction to be held early on Wednesday. Milk is New Zealand's top export earner.

Trade data out on Tuesday showed the country's terms of trade fell a sharp 3.7 percent in the third quarter as import prices rose by the most in seven years. urn:newsml:reuters.com:*:nL3N13O0FR

New Zealand government bonds 0#NZTSY= eased slightly, sending yields 1 basis point higher in the middle of the curve.

Australian government bond futures were split, with the three-year bond contract YTTc1 down 2 ticks at 97.880. The 10-year contract YTCc1 was 2 ticks firmer at 97.1300, while the 20-year contract YXXc1 added 2.5 ticks to 96.6400. (Editing by Jacqueline Wong)

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