Australian dollar slips as RBA expands bond buying, won't hike until 2024

SYDNEY: The Australian dollar stepped back on Tuesday after the country's central bank surprised by expanding its bond buying stimulus while also hardening its commitment to keeping interest rates on hold for three more years.

The Aussie eased to $0.7627, from $0.7660, but has solid chart support around $0.7600. It remains well short of the January peak at $0.7819 and faces layers of resistance from $0.7660 to $0.7700 and $0.7764.

The Reserve Bank of Australia (RBA) held its cash rate at 0.1% as expected but wrong footed many by expanding its current bond buying program by another A$100 billion ($76.35 billion).

The present program is set to end in April and analysts had thought the RBA would wait another month or so before deciding whether to extend it.

The bank's former commitment to not raise rates for at least three years also morphed into an expectation that the conditions for a hike would not be met until 2024 at the earliest.

"On a number of levels, the RBA policy statement was a dovish surprise for FX markets," said Robert Rennie, head of financial market strategy at Westpac.

"We see some further underperformance in the A$ near term, to at least a test of the $0.7600 level," he added. "But weakness back towards the midpoint of our short term fair value model - $0.7550 and below - is an opportunity to buy as the A$ will gain sharply through the second half."

The RBA's pledge to buy more bonds saw yields on 10-year paper drop back to 1.08%, after touching a 10-month top of 1.19% early in the session.

RBA Governor Philip Lowe will speak on the outlook on Wednesday and appears before a parliamentary economics committee on Friday.

The kiwi dollar held firm at $0.7173, after finding support at $0.7150. It remains far from the January top of $0.7314 and has resistance at $0.7225 and $0.7246.

The Reserve Bank of New Zealand (RBNZ) has already trimmed the pace of its bond buying, to NZ$570 million this week from NZ$650 million last week, a move that upset bonds.

Yields on 10-year paper surged to a 10-month high of 1.25%, from 1.06% a week ago and a trough of 0.49% back in September.

That saw the spread with Treasuries swing to +17 basis points, from -5 basis points a couple of weeks ago, underpinning the kiwi dollar.