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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.

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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