The New Zealand dollar rose to a two-month high against the Australian dollar after the Reserve Bank of Australia lowered its forecast inflation track, adding to a case for a further interest rate cut across the Tasman.

The New Zealand dollar rose to 92.68 Australian cents and earlier touched 92.81 cents the highest since early March apart from a brief spike on Tuesday when the RBA cut its cash rate to 1.75 percent.

The kiwi fell to 68.54 US cents, dragged lower by a drop in the Aussie dollar, from 69.02 cents yesterday. The RBA today released its monetary policy statement, showing the forecasts and assumptions that prompted this week's rate cut.

Australia's consumer price index fell 0.2 percent in the first quarter, the biggest quarterly decline since December 2008, for a smaller-than-expected annual gain of 1.3 percent.


Today's RBA statement forecasts underlying inflation of between 1 and 2 percent in 2016, meaning it won't move back within its target range 2-to-3 percent as it had previously expected.

"The market was a bit surprised by quite how dovish they were," said Mark Johnson, senior dealer at OMF. Still, the kiwi has now risen to levels against the Aussie "where it looks very elevated to me" give there is growing market expectation that the Reserve Bank of New Zealand will cut the official cash rate to a record low 2 percent in June.

"The market is moving closer to pricing in more rate cuts from the RBNZ," he said.

The overnight swaps market was indicating a 66 percent chance of a cut in June, with the odds rising to 96 percent by the August monetary policy statement, he said.

That was evident in the interest rate market. The two-year swap rate fell 7 basis points to 2.14 percent today and the 10-year swap rate dropped 10 basis points to 2.81 percent.

Before then, traders are awaiting the release of US monthly jobs data for April tonight, which is expected to show US companies added 200,000 workers to their payrolls last month, according to a Bloomberg poll.

A strong payrolls number combined with signs of wage inflation would help underpin the greenback.

Johnson said there is a risk the number prints weaker than expected after the private sector ADP survey showed 156,000 jobs were added in April, missing the estimate in a Reuters poll of 195,000.

If non-farm payrolls are weaker and the greenback sells off, "then we should see a bit of a pop in the kiwi and the Aussie," he said.

The local currency was little changed at 60.07 euro cents from 60.10 cents yesterday and fell to 47.30 British pence from 47.56 pence. It fell to 73.40 yen from 73.92, and dropped to 4.4545 yuan from 4.4863 yuan.