By Swati Pandey and Charlotte Greenfield
SYDNEY/WELLINGTON (Reuters) - The New Zealand dollar jumped to a three-week peak on Thursday as traders trimmed the chance of a cut in official interest rates after news the country's economy sped past all expectations in the second quarter.
The kiwi
Gross domestic product (GDP) grew 1 percent in the three months to the end of June, double the pace of the previous quarter. That easily beat market expectations of 0.7 percent, and the Reserve Bank of New Zealand (RBNZ) forecast of 0.5 percent.
In response, overnight interest rate swaps (OIS) pared the chance of a rate cut over the coming year from 40 percent to 20 percent while government bond yields <0#NZTSY=> climbed about 3 basis points across the curve.
The RBNZ releases its next monetary policy statement (MPS) next week and is widely expected to keep rates at a record low 1.75 percent.
Thursday's GDP report showed few signs of inflation though, which means the strong data does not really add to the case for a hike.
"The economy is in good shape and a rate cut is unnecessary," said Annette Beacher, Singapore-based chief Asia-Pac strategist at TD Securities.
"Actual activity data since the August MPS has been upbeat, with decent card sales, exports and a revival in housing," she added.
"However, persistently low inflation and recessionary-level business sentiment are deep concerns for the RBNZ."
The Australian dollar
The antipodean currencies got a boost this week as investors wagered China would take steps to support domestic growth in its trade dispute with the United States and hold back from inflaming trade tensions.
"Yesterday, Chinese Premier Li Keqiang said the country wouldn’t devalue the yuan to make its exports more competitive in a sign China would resist further escalation," said Steven Dooley, currency strategist at Western Union Business Solutions.
"The news boosted markets around the region with the AUD higher."Risk appetite was also helped by news that North and South Korea had made some progress on denuclearisation of the peninsula.
Australian government bond futures eased, with the three-year bond contract
(Reporting by Swati Pandey and Charlotte Greenfield; editing by Eric Meijer)