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Australian dollar unsettled as RBA Board sounds dovish note
[SYDNEY] The Australian dollar swung lower on Tuesday after the central bank said it had seen a case for cutting rates this month, a dovish surprise that led investors to narrow the odds on future easing.
The Aussie slipped 0.3 per cent to US$0.6787 in reaction, moving back toward support at last week's trough of US$0.6670.
That in turn dragged the New Zealand dollar down slightly to US$0.6386, though the kiwi did grab further ground on the Aussie.
Minutes of the Reserve Bank of Australia's (RBA) November policy meeting showed the Board agreed a case could have been made for an immediate easing, but decided to wait and gauge the impact of the three cuts delivered since June.
"We view this new information and its inclusion in today's Minutes as a dovish tilt," said Gareth Aird, a senior economist at CBA. "It appears that the 'on hold' decision was not made lightly."
The Board also noted that further cuts in the already record-low 0.75 per cent cash rate could have an adverse effect on savers and confidence.
Surveys of consumer confidence since June have shown a pattern of sharp falls after each rate cut amid worries the outlook would have to be grim for rates to go so low.
"To us, this means that it is unlikely the RBA will cut the cash rate again in December," said Mr Aird. "But with little progress in achieving full employment expected to be made by early next year, we expect another rate cut in February."
The futures market largely agreed, with the implied chance of a December cut edging up to around 30 per cent, while February was at 72 per cent.
The minutes will whet appetites for a speech by RBA Governor Philip Lowe on Nov 26 entitled "Unconventional Monetary Policy: Some Lessons from Overseas."
Analysts generally assume the central bank would not want to take its cash rate below 0.5 per cent and thus would have to resort to other measures such as asset purchases or lending to banks at super-low rates.
Bond investors were encouraged by the RBA's tone and took yields on three-year paper down to a three-week low of 0.70 per cent.
The three-year futures contract firmed 4 ticks to 99.280, while the 10-year contract added 4.5 ticks to 98.8750.