Australian dollar slips to 5-month lows, NZ$ sours on milk oversupply fears

[SYDNEY] The Australian dollar slipped to a fresh 5-month low on Tuesday as minutes from a meeting of the country's central bank voiced concerns on sluggish wages and cemented views that interest rates will stay at record lows for months.

The New Zealand dollar fell for a ninth straight session, the longest losing streak since May 2012, as investors fret about the risk of milk oversupply ahead of a global dairy auction.

The Australian dollar stumbled to US$0.7532, a level not seen since mid-June. The Aussie has now fallen, or stayed flat, in seven out of the last 10 sessions.

The currency has been on a downtrend since early September when it climbed atop US$0.8100. It has since lost 6.5 per cent amid diminishing expectations of an interest rate hike and rising US bond yields.

Minutes of the Reserve Bank of Australia's (RBA) Nov 7 policy meeting showed it harboured "considerable uncertainty"about how quickly wages growth and inflation might pick up.

In the wake of the meeting, the RBA cut its forecasts for core inflation, which is now seen lurking under its long-term 2-3 per cent target band for another two years.

"If we are right in thinking that it will take longer for wage pressures to emerge, then the RBA may have to conclude that it will miss its inflation target for an extra year," Paul Dales of Capital Economics said.

"This suggests that interest rate hikes are off the table for 2018 and for most of 2019 too." The RBA has kept rates at 1.50 per cent after last easing in August 2016.

Investors now keenly await a speech by Governor Philip Lowe at 0905 GMT Tuesday titled "some evolving questions" where he is likely to review the bank's latest economic forecasts.

Across the Tasman Sea, the kiwi dollar edged down to 0.6798, not far from Friday's US$0.6781, the lowest level in 1-1/2 years, New Zealand's Fonterra said on Tuesday its milk output rose 3 per cent in October from a year earlier.

That is bad news for dairy prices, which declined to a seven-month low at the most recent auction on volatile global demand.

The dairy sector generates more than 7 per cent of New Zealand's NZ$270 billion (S$250 billion) in gross domestic product.

New Zealand government bonds eased, sending yields 2.5 basis points higher at the long end of the curve.

Australian government bond futures slipped, with the three-year bond contract and the 10-year contract down 2 ticks at 98.040 and 97.42 respectively.

REUTERS