The Australian dollar dropped to a three-week trough on Tuesday after the central bank kept rates on hold at its monthly policy meeting, and took a cautious view on the health of the job market. The Australian dollar fell a quarter of a US cent to $0.7575, pulling away from a recent peak of $0.7750 touched last month. Key chart support is found at $0.7552, then $0.7510.
It also fell to its lowest this year against the yen at 83.70 yen as the safe-haven currency benefited from a bout of risk aversion. The New Zealand dollar was also on the back foot at $0.6988, from $0.7022 earlier, having been caught in the Aussie downdraft. It was now testing the floor of the recent range around $0.6975/77 and a break would open the way to the March trough at $0.6890.
New Zealand government bonds gained, sending yields 7 basis points lower at the long end of the curve. Australian government bond futures rose near four-month peaks, with the three-year bond contract up 4 ticks at 98.110. The 10-year contract jumped 8.5 ticks to 97.3750, while the 20-year contract gained 8 ticks to 96.8300.
The Reserve Bank of Australia (RBA) held its cash rate, as expected, at a record low of 1.5 percent following two easings last year, seeing moderate economic growth. But its dovish comments on the labour market surprised some Aussie dollar bulls. "The RBA noted that "some indicators in the labour market have softened recently"," said Elias Haddad, a director at Commonwealth Bank of Australia.
"In its previous statement the RBA highlighted that labour market indicators were mixed," he added, seeing scope for the Aussie to fall towards its 200-day moving average of $0.7549. Also undermining the Aussie was the RBA's considerable caution on the housing market as prices continue to rise.