WELLINGTON/SYDNEY: The Australian dollar was swept higher by a wave of short covering on Tuesday after the Reserve Bank of Australia gave no hint of an imminent cut in interest rates, surprising some investors who had expected a more dovish statement. The Aussie climbed as high as $1.0285, rebounding from a six-week trough of $1.0224, after the RBA kept rates unchanged at 3.25 percent as widely expected, and said the impact of rate cuts earlier this year was still working through the economy. While the central bank conceded the outlook was becoming more uncertain for China, Australia's single biggest export market, it gave no hint of whether this may lead to another rate cut soon. This disappointed investors who had bet the central bank would indicate a rate cut next month or in November. "People had thought the RBA may make more of the recent deterioration in Chinese data and the fall in Australian commodity prices, but that wasn't the case," said Hamish Pepper, currency strategist at Barclays Capital in Singapore. "That drove rates higher at the short end and the Aussie up around 20 or 30 pips." The Aussie also rose from multi-month troughs versus the euro and the yen, and rallied against its New Zealand counterpart. "The Aussie's move was simply positioning as markets were a bit short," a trader at a European bank in Singapore said. But the currency's upside remained capped as market participants expect the RBA will eventually have to cut rates given the global headwinds. The Aussie has fallen around 4 percent in the past month, retreating from a near four-month high above $1.0600 hit in August, as markets grew increasing bearish on China. Interbank futures trimmed expectations of a rate cut next month following the RBA statement, but the market remained fully priced for one in November. Australian debt futures gave back some of their recent hefty gains, with the three-year bond contract down 0.02 points at 97.580. It peaked to 96.660, its highest since late July and charts suggest the next big level is 97.706, the 61.8 percent of the June-August retracement. The 10-year contract eased 0.02 points to 97.000, having touched one-month highs of 97.085 on Monday. KIWI LAGS The New Zealand dollar eased to a six-week low of $0.7955, unable to capitalise on the pop higher in the Aussie. It stumbled to a two-month low versus the euro which benefited from expectations the European Central Bank will this week detail aggressive measures to lower borrowing costs for debt-laden euro zone countries. The kiwi also failed to get a boost from data showing a small lift in New Zealand commodity prices, as a persistently strong currency has wiped out the impact of the price lift. NZ government bonds eased a touch, nudging the yield on 2021 bonds 1.5 basis points higher. The Antipodeans are expected to stay on the back foot if the ECB fails to deliver a decisive plan to tackle the euro zone crisis on Thursday, while the Aussie and the kiwi could also fall if U.S. data on Friday show an improving labour market, which could ease speculation of more U.S. quantitative easing.

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