The Australian dollar jumped to its highest in nearly eight months on Tuesday after the country's central bank sounded less dovish than some had expected. The Aussie raced to $0.9464, a high not seen since early November, from around $0.9417 after the Reserve Bank of Australia (RBA) left interest rates unchanged at 2.5 percent and made no fresh attempt to talk down the currency.
It broke above its 2014 peak of $0.9461 set back in April after clearing the barrier around $0.9450. A close at the highs could pave the way towards 95 US cents, traders said. The RBA simply reiterated that the local dollar was high by historical standards. It also said interest rates were low enough to provide support in an economy facing a cooling down in mining investment.
The Aussie also firmed against the euro and yen but was steady on its New Zealand peer. The New Zealand dollar climbed 0.2 percent to $0.8771, but stayed below a near three-year high of $0.8795 hit late last week. Markets had braced for a more dovish tone from the RBA, particularly after minutes of its June meeting suggested it was less confident about the outlook for the economy.
"So we've seen the Aussie dollar spike higher on short covering. The surprise for the market was that there was a lack of dovishness in the statement," said Prashant Newnaha, strategist at TDSecurities in Singapore. The kiwi appeared to be taking a breather after last month's 3 percent rally against the greenback. The consolidation saw it pull back from a post-float high on a trade-weighted basis.
Analysts, however, suspect its rally could resume later this week should readings of US manufacturing and employment surprise on the downside and suggest the Federal Reserve might hold off from raising interest rates for longer. New Zealand government bonds slipped, pushing yields 2.5 basis points higher across the curve. Australian bond futures softened in reaction to the RBA's statement. The three-year contract dipped 3 ticks to 97.280. The 10-year contract slipped 4 ticks to 96.405, recoiling from a one-year high of 96.470 set on Friday.
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