By Charlotte Greenfield and Naomi Tajitsu
SYDNEY/WELLINGTON, July 22 (Reuters) - The Australian dollar eased on Wednesday after benign inflation figures reinforced belief that the Reserve Bank of Australia (RBA) has room to lower interest rates further if needed.
RBA Governor Glenn Stevens said, however, that too much easing could lead to longer-term dangers through risk-taking and excessive borrowing, in effect setting the bar pretty high for any rate cuts. ID:nS9N0ZF00M
All that left the Aussie AUD=D4 a touch softer on the day at $0.7411, down from a session high of $0.7440. Against the yen, the Aussie dipped 0.2 percent to 91.70 AUDJPY=R .
Wednesday's data showed Australia's annual pace of core inflation at around 2.3 percent, well within the RBA's target band of 2 to 3 percent. ID:nL3N10169W
"The Reserve Bank can comfortably ignore inflation and discuss merits of another interest rate cut on the economy if needed," said Savanth Sebastian, an economist at CommSec.
"Policymakers will focus more attention on the labour market, shifts in the Aussie dollar and retail activity in coming months."
In contrast, the Reserve Bank of New Zealand is considered almost certain to cut interest rates on Thursday.
That is keeping the kiwi dollar NZD=D4 on the defensive. It traded around $0.6609, having recoiled from Tuesday's one-week high of $0.6655.
Versus a currency basket =NZD , it edged down to 70.15, nearing a three-year low of 69.08 set last week.
"Our expectations are for a 25 basis point cut and a pretty explicit easing bias and I see the New Zealand dollar pretty well priced for that," ANZ currency strategist Sam Tuck said.
A Reuters poll of 14 economists shows all respondents expect the RBNZ to cut its Official Cash Rate by 25 basis points to 3.0 percent on Thursday. NZ/POLL
Rate futures CSRBNZ=CSAU are fully pricing in 25 basis points' worth of easing with a small chance of a bigger cut on Thursday, while roughly two more cuts are priced in during the next year CSRBNZ1Y=CSAU .
Tuck at ANZ added that support at $0.6500 would hold in the near term, but warned that trading would likely be volatile after the RBNZ's rate announcement, particularly if the central bank softens its language on the currency while flagging more rate cuts.
New Zealand government bonds 0#NZTSY= edged up, nudging yields 1 basis point lower across the curve.
Australian bond futures were firmer, with the three-year bond contract YTCc1 rising 4 ticks to 98.010. The 10-year contract YTCc1 climbed 3 ticks to 97.0550. (Editing by Simon Cameron-Moore)