Australian dollar slips as RBA sounds relaxed, NZ dollar follows

[SYDNEY] The Australian dollar slipped to three-month lows on Tuesday after the country's central bank held rates steady as expected and cautioned that a higher currency would drag on the economy and inflation.

The Aussie was down 0.4 per cent at US$0.7793 against a broadly firmer US dollar and testing chart support in the US$0.7786/7795 zone.

The Reserve Bank of Australia's (RBA) decision to keep rates at 1.5 per cent was far from a surprise given Governor Philip Lowe recently stated it would be "some time" before a hike was likely.

Lowe's statement from Tuesday's October policy meeting maintained the same relaxed tone, noting inflation remained low and unemployment would decline only gradually despite recent strong jobs growth.

Markets are not fully priced for a rate rise until August next year, a contrast with the US Federal Reserve which continues to flag a possible hike in December this year.

As a result the premium offered by Australian bonds has been shrinking, with two-year yields now 48 basis points over US debt compared with 60 basis points a couple of weeks ago.

"The dip in the Aussie after the statement might reflect the large overhang of long speculative positioning, with some accounts hoping for a more hawkish note," said Sean Callow, a senior currency strategist at Westpac. "If the US dollar continues to find yield support, AUD/USD could ease towards US$0.7750/60."

The New Zealand dollar eased to US$0.7165, from US$0.7195, after a survey showed the recent hotly contested, and inconclusive, election had weighed on business confidence.

The vote left a populist maverick figure as kingmaker ahead of the final tally on Saturday.

"The NZD/USD is oscillating around the US$0.72 level and the NZD is range-trading against the other crosses. That looks the story into year-end," said Cameron Bagrie, chief economist at ANZ Bank. Investors would keep an eye on a global auction for dairy, the country's main goods export earner, in the early hours of Wednesday morning.

New Zealand government bonds gained, sending yields 2 basis points lower at the long end of the curve.

Australian government bond futures also edged higher, with the three-year bond contract up 1 tick at 97.800. The 10-year contract rose 2 ticks to 97.1200.

REUTERS