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Australia dollar soft on RBA minutes, kiwi rangebound

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The Australian dollar was subdued on Tuesday as the country's central bank expressed concern about the impact of high household debt on the economy while the New Zealand dollar maintained recent ranges.

[SYDNEY] The Australian dollar was subdued on Tuesday as the country's central bank expressed concern about the impact of high household debt on the economy while the New Zealand dollar maintained recent ranges.

The Aussie eased 0.1 per cent to US$0.7412 from Monday's high of US$0.7443.

The currency is now down more than 5 per cent since the start of the year when it traded above 80 US cents. The losses have largely been due to diverging interest rate outlook where the US Federal Reserve is on a tightening path while its Australian counterpart is seen keeping policy steady for some while yet.

The minutes of the Reserve Bank of Australia's (RBA) July meeting further reiterated the need for interest rates to remain on hold.

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While wages and inflation remain tepid, household debt is at a record high. The RBA fears rate hikes will have a larger impact on disposable incomes for those with high debt.

"The minutes of the Reserve Bank of Australia's July meeting confirm that the bank is a long way from raising interest rates and that it is worrying more about a global trade war, the slowdown in China and the high level of domestic debt at home," said Paul Dales of Capital Economics in a note to clients.

Data out on Monday pointed to a slowdown in China's economy amid headwinds of an escalation of trade war with the United States.

"If anything, July's minutes support other evidence that the RBA is becoming a bit more concerned about the outlook."

The RBA held a detailed discussion on the high level of household debt at its July meeting and concluded that "household balance sheets continued to warrant close and careful monitoring," the minutes showed.

Across the Tasman Sea, the New Zealand dollar was a shade firmer at US$0.6781. It eased briefly after second-quarter inflation came in slightly below expectations.

The kiwi initially fell to US$0.6756 but quickly pared its losses.

Overall, the RBNZ is still expected to stand pat on rates and keep policy at a record low well into 2019, as it awaits a further pick-up in inflation.

New Zealand government bonds eased, sending yields 1.5 basis points higher at the short end of the curve.

Australian government bond futures slipped, with the three-year bond contract off 2.5 ticks at 97.905. The 10-year contract dipped 1.5 ticks to 97.345.

REUTERS

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