SYDNEY/WELLINGTON: The Australian showed resilience and kept large gains on Tuesday even as the Reserve Bank of Australia (RBA) left the door wide open for further easing, due in part to the painfully high level of the local currency. The RBA maintained, as expected, the main cash rate at a record low of 2.75 per cent at its monthly policy meeting, saying the low interest rate environment should strengthen growth. The Aussie was holding at $0.9734, hanging onto hefty gains following a whopping 2 per cent rally overnight on the back of soft US manufacturing data. It rose as far as $0.9792, its strongest in nearly two weeks, which probably didn't please the central bank. The rally partially offset a sharp decline in the Aussie which tumbled 8 per cent in May to a 19-month low of $0.9528. Andrew Lilley, a rate strategist at UBS, said a move closer to 90 cents would make the Reserve Bank more relaxed. "The RBA did note that the currency is still high, so it is by no means done and certainly has kept an easing bias," he said, seeing a rate cut sometime next quarter. Markets are wagering on a follow-up cut in large part because a long boom in mining investment is likely to plateau this year and it remains uncertain whether other sectors will prove strong enough to take up the slack. Interbank futures are fully priced for a move by October, while swap rates imply around 30 basis points of easing over the next 12 months. A break of the Aussie dollar's 20-day moving average of $0.9795 could signal a bigger correction upwards. Australian government bonds drifted lower, with the three-year contract down 0.03 points to 97.340, while the 10-year contract slipped 0.015 points to 96.565. The New Zealand dollar also benefited from the pullback in the US dollar on Monday, enjoying its largest one-day gain since late 2011. Late Tuesday it was hovering at $0.8056, within sight of a peak of $0.8119 set overnight. The kiwi hit an eight-month low of $0.7937 on Friday and fell more than 5 per cent last month. Near-term support is seen at $0.8030 and then $0.8000, with the topside hurdles at $0.8084, the 10-day moving average and then about $0.8110. Investors will be watching the outcome of dairy giant Fonterra's milk auction on Wednesday, where prices have fallen at the last two sales. The currency was unmoved by data showing the New Zealand government's deficit for the 10 months to April was 14 per cent lower than forecast because of a higher-than-expected tax take. New Zealand government bonds nudged lower, sending yields one basis point higher along the yield curve.

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