By Cecile Lefort and Rebecca Howard
SYDNEY/WELLINGTON, April 28 (Reuters) - The New Zealand dollar bounced on Thursday after the Reserve Bank of New Zealand (RBNZ) wrongfooted bears by skipping a chance to cut interest rates, while its Australian counterpart was nursing hefty losses.
The New Zealand dollar NZD=D4 jumped half cent to $0.6908 after rates were held at 2.25 percent. It rose as high as $0.6940 at one stage compared to a trough of $0.6808 on Wednesday. It was also pulling closer to a 10-month peak of $0.7055 touched last week.
"Today was a missed opportunity to reduce the upward pressure on the NZD," said Jarrod Kerr, a senior interest rate strategist at CBA, noting the kiwi had climbed three cents on its Australian counterpart in 24 hours AUDNZD=R .
Market pricing still implies a 62 percent chance of a cut at the next policy meeting on June 9.
"We expect a rate cut in June and August, and possibly again in September," said Kerr.
New Zealand government bonds 0#NZTSY= chose to follow a rally in U.S. Treasuries after the Federal Reserve sounded in no rush to hike after its policy meeting. Yields were as much as 5.5 basis points lower at the long end.
The Australian dollar AUD=D4 was steady at $0.7588, having slumped 2 percent on Wednesday in the biggest one-day drop in eight months. Support was found at $0.7548 and $0.7526.
Since touching a 10-month peak of $0.7836 one week ago, the Aussie has dropped 2-1/2 cents.
It was knocked back after disturbingly soft inflation data revived expectations of a cut in rates by the Reserve Bank of Australia (RBA).
Interbank futures 0#YIB: imply a 58 percent chance of an easing to a record low of 1.75 percent at the RBA's policy meeting next week, from 12 percent earlier in the week.
However, the vast majority of economists still forecast the central bank to keep rates steady on May 3.
The Aussie skidded two yen to 82.68 yen AUDJPY=R after the Bank of Japan disappointed bears who had wagered on further policy stimulus. The yen rallied broadly, with the Aussie down 4 percent so far this week.
It touched its lowest this year against its Canadian counterpart AUDCAD=R .
The marked slowdown in inflation boosted Australian government bond futures, with the three-year contract YTTc1 up 7 ticks at 98.140.
The 10-year contract YTCc1 jumped 8.5 ticks to 97.4750 in a bullish flattening of the curve. The 20-year contract YXXc1 also rose 8.5 ticks to 96.9000. (Editing by Richard Borsuk)