Kiwi falls as central bank reinforces negative rate expectations

SYDNEY, Oct 8 (Reuters) - The New Zealand dollar slipped against its U.S. and Australian counterparts on Thursday, undermined by expectations of negative central bank rates.

The kiwi slipped 0.4% after a New Zealand central banker said it was “actively working” on negative rates, reinforcing existing expectations for such a move.

“It seems like a very clear message that (negative rates) are their intention, so I think that’s what the market latched onto,” said BNZ senior economist Doug Steel.

“In a way, it’s a very similar message to what they gave in their September monetary policy review, but it’s reinforcement of it and arguably a little more aggressive.”

That pushed the Australian dollar up to NZ$1.0888, its highest level against the kiwi since Sept. 15.

Also supporting the Aussie against its trans-Tasman counterpart was Canberra’s planned spending spree to turn around its coronavirus-hit economy, announced on Tuesday.

However, the Australian currency defied a broader risk rally against safe-haven units on Thursday, trading flat at $0.7140, having lifted off a one-week low on Wednesday.

The U.S. dollar and yen were marginally weaker after the revival of hopes for some U.S. spending improved appetite for riskier currencies. A flurry of late-Tuesday tweets from President Donald Trump, after he cancelled talks with Democrats over coronavirus relief, suggested he was open to piecemeal spending measures. “It’s been a rather quiet session (and) little on the data docket to move the Australian dollar,” said TD Securities Asia-Pacific rates strategist Prashant Newnaha.

Analysts interpreted a monetary policy statement from the Reserve Bank of Australia on Tuesday to mean it would expand its bond buying programme.

However, analysts say the Reserve Bank of New Zealand still sounds more dovish than Australia’s central bank.

Shorter-dated Australian government bond yields recovered from lows hit on Wednesday when investors priced in a rate cut and more bond buying from the central bank. The three-year yield climbed to 0.15%, coming off a record low of 0.138%.

Three-year treasury futures dipped 1 tick to 99.815 while ten-year bond futures eased 3 ticks to 99.120. (Editing by Vidya Ranganathan and Sam Holmes)