Aussie dlr fades on dovish RBA, kiwi off 1-1/2 yr peak

SYDNEY/WELLINGTON: The Aussie dollar eased on Tuesday after the Reserve Bank of Australia (RBA) held rates unchanged, but left the door wide open for further easing if necessary to support an economy battling a strong currency.

The Australian dollar fell half a cent to $1.0395, showing a loss of 0.3 percent on the day. Immediate support is seen at $1.0361, Friday's low, with resistance at $1.0459, the session's high.

Interbank futures were barely changed as the market had only seen a one-in-five chance of an easing this month and were already positioned for in a near 50-50 chance of a cut in March. Swap markets also imply further easing to a record low of 2.75 percent over time.

"It still looks like we've got some further easing to go," said Ben Jarman, an econmist at JPMorgan.

"We've got them next going in May with a 25 basis point cut. We think it's going to take a little longer for the softness in the domestic data to give them enough evidence to go again."

With inflation restrained by the lofty currency and retail discounting, underlying inflation sits in the lower half of the RBA's long-term target band of 2 to 3 percent, giving the bank plenty of ammunitions to support a slowing economy.

The RBA cut rates by 125 basis points last year in part to help revive activity in the housing market and boost manufacturing and retail, two sectors that were hard-hit by a strong Aussie dollar.

Earlier in the session, data showed Australia's trade deficit surprisingly narrowed to A$427 million in December from A$2.8 billion, thanks to an increase in iron ore shipments, Australia's top export earner.

The New Zealand dollar slipped to $0.8416 as investors booked profit after striking a 1-1/2-year high of $0.8493 on Monday.

This prodded the Aussie to bounce from its lowest since July 2010 against its kiwi cousin to last trade at NZ$1.2352.

The euro nursed hefty overnight losses, having run into profit-taking after recent hefty gains to last fetch A$1.2965 and NZ$1.6015.

Against the yen, the Antipodeans retreated from four-year highs set on Monday with the Aussie at 96.06 yen, having scaled 97.09 overnight. Likewise, the kiwi eased to 77.73 yen, from a peak of 78.80.

Data out in New Zealand showed a modest lift in wages and the job market in the December quarter, posing no risk to inflation and the central bank's steady interest rate policy.

NZ government bond prices edged up, pushing yields around 2 basis points lower across the curve.

Australian government bond futures bounced from nine-month lows with the three-year contract up 0.070 points to 97.130 and the 10-year contract 0.085 points higher at 96.520.