By Wayne Cole
SYDNEY, June 5 (Reuters) - The Australian and New Zealand dollars clung to gains on Wednesday as bears focused on the negatives for the United States and Europe and looked past weakness in domestic economic conditions.
Dealers emphasised the market was still structurally short of the Aussie and kiwi after weeks of selling and their gains could prove short-lived once positions were more balanced.
For now, the Aussie AUD=D3 was holding firm at $0.6997, having risen 0.9% in three sessions as its U.S. counterpart came under broad-based pressure on expectations the Federal Reserve could soon cut rates. Likewise, the kiwi NZD=D3 was perched at $0.6630, having flown up 1.4% for the week so far.
The Aussie did well to dodge damage from a disappointing reading on Australian gross domestic product (GDP) which showed annual growth slowed to a decade-low of 1.8% last quarter.
The saving grace was that poor numbers had already been priced in and largely preempted by Tuesday's cut in interest rates from the Reserve Bank of Australia (RBA). are already primed for at least one more easing in the 1.25% cash rate with July put at a 32% chance and August at 70%, while September is almost a done deal 0#YIB: .
"We favour a pause for the RBA to assess the impact of the June cut as well as determine exactly what fiscal stimulus is coming down the pipe, and how this combination impacts the economic outlook," said Annette Beacher, chief Asia-Pacific macro strategist at TD Securities.
"As our tracking for Q2 core inflation is 1.5% y/y, this supports our view of a follow-up cut in August to 1%."
Yet Australia is hardly alone in needing stimulus, with markets aggressively pricing for easing in the U.S., European Union and Canada, among many others.
The European Central Bank is set to meet on Thursday amid much talk it will take a dovish stance following disappointingly soft inflation figures. Reserve Chairman Jerome Powell on Tuesday opened the door to a rate cut should trade disputes with China and Mexico threaten domestic activity. on two-year Treasury notes US2YT=RR have dived a huge 40 basis points in the past couple of weeks, while Australian yields AU2YT=RR are down just 15 basis points.
On Wednesday, Australian three-year bond futures were 1 tick higher at 98.890, while the 10-year contract YTCc1 held steady at 98.4850. Both are just off all-time peaks. (Editing by Shri Navaratnam)