The Australian dollar held near a five-month trough on Tuesday as the central bank held cash rates at record lows as expected and reiterated the need for policy to remain steady for a while yet. The Aussie dollar was last buying at $0.7539, within spitting distance of Monday's $0.7526. The Aussie slipped about 2 percent in April to clock its third straight monthly loss. It has fallen in 8 of the last 10 sessions.
The currency has been on a slippery slope since mid-April when the US dollar jumped on concerns of flaring inflation and faster rate rises in the United States. The Federal Reserve is expected to hike rates at least twice more this year alone. The Reserve Bank of Australia (RBA), on the other hand, has held rates since August 2016 and is likely to stay pat on policy for at least another year.
On Tuesday, it kept its official cash rate at 1.50 percent and stuck to its standard line saying holding its policy stance would be consistent with sustainable economic growth and achieving inflation target. "The hallmarks of today's commentary is around growth to pick up from here," said Ben Jarman, Sydney-based economist at JPMorgan. "We've not been expecting any huge changes in their forecasts. It might be on the margins, if at all. All things considered, the narrative is not a lot different this time compared to their previous forecast."
The policy divergence is pushing US Treasury yields above those in Australia. The Fed will meet this week but is likely to leave rates unchanged. Yields on Australian 10-year paper are already 19 basis points under the United States, levels not seen since mid-1998 when the Aussie held around 60 US cents. The story is not a lot different in New Zealand.
The kiwi dollar stood near four-month lows at $0.7037. It lost 3 percent in April, its worst monthly performance since October. Investors will turn their attention to a fortnightly dairy auction due later in the day with the futures market suggesting a 3 percent rise in prices for whole milk powder, New Zealand's top goods export. Separately, first-quarter labour data due Wednesday morning is expected to show unemployment at nine-year lows of 4.5 percent.
New Zealand government bonds gained, sending yields 2 basis points lower at the long end of the curve. Australian government bond futures were mixed, with the three-year bond contract down 1 tick at 97.770. The 10-year contract inched 1 tick higher to 97.2250.
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