By Swati Pandey and Rebecca Howard
SYDNEY/WELLINGTON, July 28 (Reuters) - The Australian and New Zealand dollars inched higher on Thursday, benefiting from weakness in the U.S. dollar after the Federal Reserve stopped short of signalling a near-term rate rise.
The Australian dollar AUD=D4 climbed 0.27 percent to $0.7512, staying above key resistance at 75 cents. It is already up about 0.8 percent in July, a concern for the Reserve Bank of Australia which wants to restrain the buoyant currency.
That resilience is weighing on already low inflation and could prompt the central bank to cut interest rates at its policy meeting next week. The market is pricing around a 58 percent probability of a cut to 1.5 percent 0#YIB: .
The headline CPI index rose just 1.0 percent in the year to June, while key measures of underlying inflation held at 1.5 percent, all well below the RBA target band of 2 to 3 percent. Australian bond yields will still be attractive given most other major central banks are expected to ease further in coming months, limiting any losses for the Aussie.
"While we expect a cut, this is not a clear signal to sell the AUD for now," ANZ said in a research note.
"For a more sustained sell-off we would need to see the RBA signalling that cash was set to push below 1.5 percent. Based on current economic performance, and taking into consideration that the RBA sees 1 percent as its lower bound, the hurdle to this happening is high."
The New Zealand dollar NZD=D4 bounced on Thursday after falling for two consecutive sessions. It was up 0.4 percent to 0.7106 in early afternoon trading.
"Kiwi remains fairly well bid despite the Fed's upbeat assessment of the US economy," said ANZ Senior Rates Strategist David Croy.
While the Reserve Bank of New Zealand is widely expected to cut rates to record low territory at its Aug. 11 meeting, the move was all but priced in, said Croy.
Last week, the kiwi slid to its lowest level in more than six weeks after the RBNZ announced more policy easing was likely. Zealand government bonds 0#NZTSY= gained, sending yields around 2 bps lower across the curve.
Australian government bond futures climbed in line with U.S. Treasuries and in anticipation of a possible easing at home. The three-year bond contract YTTc1 added 5 ticks to 98.580, while the 10-year contract YTCc1 rose 8 ticks to a three-week top of 98.120.