Australian dollar unruffled by RBA, kiwi slightly firmer

[SYDNEY] The Australian dollar held near one-month highs as investors shrugged off a widely expected move by the nation's central bank to keep rates steady and priced in only a modest chance of an easing in the next month or so.

The Australian dollar had paused at US$0.7670, not far from crucial chart resistance of 77 US cents - a level it has breached several times in the last couple of months but failed to hold above.

It eased from the day's high of US$0.7691 after the Reserve Bank of Australia (RBA) held rates steady at a record low 1.5 per cent.

New RBA governor Philip Lowe also resisted any temptation to signal a bias to ease again, saying only that an unchanged stance was "consistent with sustainable growth in the economy and achieving the inflation target over time."

As a result, the odds for another cut this year widened with futures markets implying a 24 per cent chance of a move by December compared with over 30 per cent last week.

"It is hard to argue that the domestic economy needs additional assistance," said Michael Blythe, chief economist at CBA.

"The AUD is higher. But so are commodity prices. There is a debate about whether a further rate cut would help or perhaps threaten financial stability."

The Aussie is among the best performing major currencies in 2016, up 5.2 per cent despite two rate cuts this year.

Against the Japanese yen, the Aussie was up 0.5 per cent on Tuesday to 78.30 yen after a Bank of Japan (BOJ) survey showed that long-term inflation expectations from companies had weakened in September.

"Taking this as a sign that BOJ will surely have to act more aggressively, traders quickly priced in further easing from the BOJ," said Matt Simpson, Melbourne-based senior analyst at ThinkMarkets.

The New Zealand dollar was a tad firmer at US$0.7288.

It was underpinned by a strong rise in business confidence, though the data also pointed to a lack of inflationary pressure.

"Growth is strong and capacity pressures are building, yet inflation is missing in action," said ANZ Chief Economist Cameron Bagrie.

"A November cut remains odds-on."

The Reserve Bank of New Zealand last cut in August to a record low 2 per cent.

Looking ahead, investors will watch the regular Global Dairy Trade auction for any improvement in milk prices.

New Zealand government bonds gained, sending yields one basis point lower across the curve.

Australian government bond futures eased, with the three-year bond contract down five ticks at 98.47. The 10-year contract fell 4.5 ticks to 97.965.

REUTERS