Australia, NZ dlrs take stock as bonds pare stellar gains

By Wayne Cole SYDNEY, March 17 (Reuters) - The Australian and New Zealand dollars were taking stock on Friday after a week of banking turmoil saw bonds make huge gains as markets drastically scaled back expectations for further hikes in interest rates. While bonds did retreat on Friday after U.S. authorities engineered support for another regional bank, three-year futures were still up 30 ticks for the week and yields stood at 3.02% compared to the March top of 3.65%. Markets have almost priced out the chance of the Reserve Bank of Australia (RBA) lifting its 3.6% cash rate at its April meeting and instead imply a risk the next move will be down. That is a huge turnaround from a couple of weeks ago when investors had seen rates topping at 4.1% or higher. Many analysts still think the RBA will hike at least once more given the labour market remains tight and inflation too high, but much now depends on global events. "We have not changed our house call, for final 25 bp rate hikes in April and May, but risk clearly tilts to the downside, and we think the RBA could easily justify a pause, if it so wishes," said Andrew Ticehurst, an economist at Nomura. "Headlines around the health of the global banking sector will likely continue to drive price action and near-term central bank pricing expectations." The pullback in rate expectations for the U.S. Federal Reserve has been even larger, providing some support for the Aussie in the face of general risk aversion. The Aussie was holding at $0.6662 , having bounced 1.2% for the week so far and away from the recent four-month low of $0.6565. Stiff resistance now lies at $0.6715. The kiwi dollar was up 1.1% on the week at $0.6202 and off its recent trough of $0.6086. It faces resistance at $0.6265. The market still expects the Reserve Bank of New Zealand (RBNZ) will raise its 4.75% official cash rate by 25 basis points in April, but has lowered the likely peak to 5.25% from 5.50%. A surprisingly weak reading on fourth-quarter economic growth had added to the case for moderation, with some analysts warning New Zealand was already in recession. "GDP is running almost two percent below what the RBNZ was expecting in February," said Michael Gordon, acting NZ chief economist at Westpac. "We've revised our OCR forecast down to a peak of 5.00%, from 5.50% previously," he added. "That implies only one more 25 basis point increase left in this cycle, which we still think will be delivered in April." (Reporting by Wayne Cole; Editing by Sonali Paul)

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