The New Zealand dollar boasted its biggest daily rise this year on Wednesday after the country's central bank surprised markets by keeping interest rates steady, wrongfooting bears who had wagered heavily on a cut.
The kiwi dollar NZD=D3 jumped 1.1% to $0.6405 as speculators were squeezed out of short positions, which had become a very crowded trade in recent weeks.
The currency now needs to crack chart resistance at the November peak of $0.6466 to extend the rally.
Bears were forced to scramble when the Reserve Bank of New Zealand (RBNZ) skipped a chance to cut rates, staying at 1% when the market had been odds-on for an easing.
The central bank's next policy meeting is also not until February, too long a time for speculators to stay short.
"Today's decision shows that the RBNZ is not afraid to stare down financial markets," said Dominick Stephens, chief economist for New Zealand at Westpac.
"The RBNZ is certainly open to a February cut," he added. "Our long-held view is that the low-point in the current rate cycle will be 0.75%."
The market was not so sure, with swap rates surging to imply only a 20% chance of a cut in February. RBNZWATCH
Yields on two-year government bonds NZ2YT=RR climbed 10 basis points to their highest since August at 1.00% - the sharpest daily rise since mid-2017.
The Kiwi also jumped on its Australian neighbour, with the Aussie diving 1.2% to NZ$1.0678 AUDNZD= . That kept the Aussie flat on the U.S. dollar at $0.6873 AUD=D3 .
Domestic Australian data was mixed with wage growth staying disappointingly subdued in the third quarter, while consumer sentiment became a little less gloomy this month.
The annual pace of wage growth slowed to just 2.2%, when analysts had looked for a steady reading of 2.3%.
That was a headache for the conservative government of Prime Minster Scott Morrison which needs much faster growth to meet its pledge of returning the budget to surplus.
It had predicted growth would pick up to 2.5% by the middle of this year, and reach 2.75% for the year to June 2020 and a heady 3.25% the year after.
The Reserve Bank of Australia (RBA) last week abandoned its long-held hope for an acceleration in pay awards, tipping an annual pace of 2.3% right out to end 2021.
"Growth remains dismal and, with the headwinds facing the economy unlikely to abate in the near term, we don't expect wages growth to accelerate markedly in the near term," said Sarah Hunter, chief economist for BIS Oxford Economics.
"Given this backdrop, we expect the RBA to cut the cash rate again in early 2020, to 0.5%."
Australian government bond futures edged up on the data, with the three-year bond contract YTTc1 rising 2 ticks to 99.170. The 10-year contract YTCc1 firmed 1.5 ticks to 98.7250.
