By Cecile Lefort and Charlotte Cooper
SYDNEY/WELLINGTON, June 1 (Reuters) - The Australian dollar powered up on Wednesday after economic growth easily beat expectations, prompting investors to further scale back expectations for an interest rate cut soon.
The Australian dollar AUD=D4 climbed as far as $0.7294 from $0.7233 in early trade and pulling further away from a three-month trough touched last week.
It was last at $0.7284 with resistance around $0.7325.
Australia's economy grew by 1.1 percent in the first quarter, marking a remarkable 25 years without a recession, data showed earlier in the day. growth of 3.1 percent far exceeded most developed nations including the United States, which last week reported annualised growth of 0.8 percent in the first quarter. is a growing disconnect between economic activity - which is improving - and inflation, which remains below the Reserve Bank of Australia (RBA)'s comfort level," said Aberdeen Asset Management Senior Investment Manager Jasmin Argyrou.
"Against this solid economic backdrop monetary easing will be very gradual and it could be a long time between cash rate cuts."
Interbank futures 0#YIB: imply a 50-50 chance of a cut to 1.5 percent by August, from 60 percent on Tuesday, and are no longer fully priced for a move over the next 18 months.
The central bank holds its monthly policy review on June 7 and the market is widely expecting rates to be on hold following last month's cut.
Australian government bond futures fell, with the three-year bond contract YTTc1 off 3 ticks at 98.350, having touched its lowest in one-month. The 10-year contract YTCc1 shed 2.5 ticks to 97.6750, while the 20-year contract YXXc1 was 1 tick lower at 97.0900.
The New Zealand dollar NZD=D4 was trading higher at US$0.6785 after getting a lift from better-than-expected first quarter terms of trade data.
New Zealand's terms of trade rose 4.4 percent in the first quarter, data from Statistics New Zealand showed on Wednesday. Economists had been expecting a fall of 0.2 percent, according to the median in a Reuters poll. The stronger-than-expected number was largely due to a sharp fall in oil product import prices.
OM Financial Limited Foreign Exchange and Derivatives Senior Client Advisor Stuart Ive said the lift in the Kiwi was likely to be short-lived, given that oil prices have been recovering steadily. He said traders are now focused on Australia and China data due later in the global trading day.
New Zealand government bonds 0#NZTSY= eased, sending yields 1.5 basis points higher across the curve.
(Editing by Kim Coghill)