Australian dollar falters on iron ore, RBA; NZ$ near two-week peak

[SYDNEY] The Australian dollar slipped on Tuesday as iron ore prices extended losses and as minutes of the central bank's April meeting reinforced views interest rates would stay low for longer.

The Australian dollar fell 0.4 per cent to US$0.7556, but stayed above a 3-month trough of US$0.7473 touched last week.

The Aussie has been on a slippery slope as investors flock to perceived safer assets such as the yen amid intensifying geopolitical tensions and ahead of the French presidential election in May.

Tumbling prices for iron ore, Australia's No1 export earner, have added to the pressure. The most-traded iron ore on the Dalian Commodity Exchange has fallen to its lowest since early January.

Earlier, minutes of the Reserve Bank of Australia's (RBA) April meeting showed policymakers had to balance a subdued labour market against escalating household debt when leaving rates steady at 1.50 per cent.

The RBA inserted a new line saying developments in the labour and housing markers "warranted careful monitoring" over coming months. "It's a very clear synopsis of the conflicting issues facing the Bank - the weak labour market is restraining inflation while the strong housing market is boosting financial stability risks," said Paul Dales, an economist at Capital Economics.

The release of quarterly inflation figures due next week will help refine the outlook for interest rates.

Financial markets imply a miniscule chance of a cut later in the year with some investors even toying with the idea of a hike in early 2018.

Across the Tasman Sea, the New Zealand dollar treaded water around US$0.7013, after hitting a two-week high of US$0.7034 on Monday.

International news loomed over the outlook, in particular US President Donald Trump's comments that the greenback should be lower. Investors were also nervous about trade friction between the world's No1 economy and Japan.

"It has been somewhat of a rollercoaster ride over the past week or so, with risk sentiment, politics, and USD direction dominating," said Philip Borkin, senior economist at ANZ bank. "But familiar ranges have held, and the NZD still finds itself after all that holding around the US$0.70 mark." Investors would pay close attention to a dairy auction held on Wednesday at which prices for milk powder, one of New Zealand's main export earners, were expected to rise.

New Zealand government bonds eased, sending yields 4.5 basis points higher across the curve.

Australian government bond futures edged lower, with the three-year bond contract down 1 tick at 98.21. The 10-year contract slipped 2 ticks to 97.48.

REUTERS