By Cecile Lefort and Rebecca Howard
SYDNEY/WELLINGTON, Feb 29 (Reuters) - The New Zealand dollar fell on Monday on mounting expectations of an interest rate cut by the Reserve Bank of New Zealand (RBNZ), dragging the Australian dollar a touch lower.
The New Zealand dollar NZD=D4 dropped 0.8 percent to $0.6581 after soft economic data and news that another major bank is now calling for rate cuts. ANZ Bank forecasts two easings, in June and then September.
Debt futures give a one-in-three chance of an easing in the 2.5 percent cash rate when the RBNZ reviews rates on March 10.
"We saw a big move in the currency and we are seeing a big move in rates," said Tim Kelleher, ASB's head of FX Institutional Sales New Zealand.
"It's all adding up," he added.
Weighing on the kiwi was an 8.2 percent drop in domestic building consents in January and a sharp fall in business confidence. of which sent the kiwi 1 percent lower against the yen NZDJPY=R , while the euro powered up 0.7 percent. EURNZD=R The kiwi bounced off a 10-month peak against the pound. GBPNZD=R
New Zealand government bonds 0#NZTSY= were mixed with yields 1 basis point lower on the short end and 1.5 basis points higher on the long-end.
Across the Tasman sea, the Australian dollar AUD=D4 struggled to make friends at $0.7120, having fallen 1.4 percent on Friday.
It entered a consolidation mode after meeting stiff resistance around a two-month peak of $0.7255-60, a level tested twice last week.
Support was found at $0.7110.
Also capping gains was disappointing domestic data seen as a drag on growth domestic product due out on Wednesday. ECONAU
Heavy yen buying sent the Aussie 0.6 percent lower to 80.70 yen AUDJPY=R , while the Canadian dollar jumped to three-month peaks against the Antipodean currencies. AUDCAD=R NZDCAD=R
The next major domestic event will be the monthly policy meeting of the Reserve Bank of Australia (RBA) on March 1.
Forty out of 41 economists polled by Reuters expect rates to stay at 2 percent where they have been since May, though a majority are tipping a cut later in the year. futures 0#YIB: imply nearly no chance of a move next week and are fully priced for an easing by August.
Australian government bond futures eased, with the three-year bond contract YTTc1 off 2 ticks at 98.260. The 10-year contract YTCc1 edged 2.5 ticks down to 97.5900, while the 20-year contract YXXc1 was also 2.5 ticks lower to 97.0500.
The spread between 10- and 3-year government bonds AU3YT=RR AU10YT=RR edged up to 68 basis points, from a 10-month low of 63 basis points set last week. (Editing by Kim Coghill)