By Cecile Lefort
SYDNEY/WELLINGTON, May 11 (Reuters) - The New Zealand dollar skidded to 11-month lows on Thursday after the Reserve Bank of New Zealand (RBNZ) wrong-footed Kiwi bulls by keeping a neutral bias at its policy review where it held interest rates steady at a record low 1.75 percent.
The New Zealand dollar NZD=D4 dropped 1.5 percent to $0.6830, having gone as far as $0.6818, the lowest since June last year. A break under $0.6810 would target a retracement to the one-year trough of $0.6676.
The pound climbed to its highest in nine months at NZ$1.8930 GBPNZD=R to show a gain of 6.7 percent so far this year.
The Kiwi also took a spill against the euro, yen, and its Aussie cousin which powered up 1.5 percent to NZ$1.0767. AUDNZD=R
"The monetary policy statement was conspicuously missing any shift in stance, despite the weakening in the NZD and recent upside inflation surprises," said Rahul Bahoria, an economist at Barclays (LON:BARC).
Markets had expected a slightly more hawkish tone following solid domestic data and signs that inflation was picking up.
Instead, the RBNZ watered down any expectations of a rise in inflation. change of a tightening under Governor Graeme Wheeler are close to nil, so we need to wait until Deputy governor Grant Spencer takes the helm in September," said Annette Beacher chief macro strategist, FX and rates at TD Securities in Singapore.
She said the market has pushed out a fully priced interest rate hike to May 2018, from March before the RBNZ policy review.
New Zealand government bonds 0#NZTSY= rose, sending yields 8 basis points lower on the short end of the curve.
With so much action on the Kiwi, the Australian dollar AUD=D4 took the backseat, following a volatile week.
It was a touch higher at $0.7363, having touched a four-month low of $0.7329 on Tuesday following disappointing domestic economic data.
It has shed 0.7 percent so far this week and if sustained it would be the fourth week of losses.
Australian government bond futures were mixed, with the three-year bond contract YTTc1 up 1 tick at 98.120. The 10-year contract YTCc1 edged half a tick lower to 97.3050, while the 20-year contract YXXc1 eased 1.5 basis point to 96.7200. (Editing by Amrutha Gayathri)