WELLINGTON/SYDNEY: The Australia dollar lost some altitude on Tuesday following dovish comments by the Reserve Bank of Australia, dragging its New Zealand peer a touch lower in thinned markets.
The Australian dollar slipped a quarter of US cent to $0.9363, after minutes of the June 3 meeting showed the RBA was not sure the current stimulus would be enough to offset a drag from falling mining investment and government belt tightening.
"The Aussie drop shows that the paragraph about the RBA not sure it had don
e enough was a bit of a surprise," said Matthew Johnson, a strategist at UBS.
"The RBA said it will be a while before they make any (policy) changes, but it's definitely a dovish step for the RBA," he said, seeing rates on hold this year.
The futures market already expects rates to stay at 2.5 percent for a long time to come with just 7 basis points of hikes priced in over the next 12 months.
Also weighing on the Aussie was caution among investors ahead of the US Federal Reserve's monetary policy statement on Wednesday.
The central bank is expected to announce it will continue paring its bond purchase programme and cut its growth projections. Support was seen at $0.9350, the 38.2 percent retracement of the $0.9208-$0.9438 move, then $0.9330.
Resistance was found at the two-month high of $0.9438 touched last week.
The euro was perkier at A$1.4478, having gained one cent since a low on Monday, but it was still not far from a seven-month trough. The New Zealand dollar was subdued at $0.8669, but still close to a one-month high of $0.8700 matched in offshore trade.
It hit a two-week high around NZ$1.0800 against the Aussie , which was weighed by weaker iron ore prices, but slipped versus the euro which edged up on short covering.
On a trade-weighted basis the kiwi was at 80.73, pulling back from a five-week high of 80.93 hit offshore.
The kiwi has enjoyed strong support as indications by the Reserve Bank of New Zealand that it will continue to lift interest rates widens its yield advantage over other major currencies.
"With NZD currency volatility hitting fresh seven-year lows yesterday, NZ's interest rate advantage continues to present an appealing proposition from a carry-trade perspective," BNZ analysts said in a note.
Investors awaited a global dairy auction later in the day to see if prices for New Zealand's biggest export product continue to fall. Some in the market expect the price slide to slow, which would support the kiwi.
Initial technical resistance was seen at $0.8691, based on a trendline drawn from highs hit last week and in May.
Support lay at $0.8667, the top of the kiwi's daily Ichimoku cloud.
New Zealand government bonds edged up, pushing yields 1.5 basis points lower at the long end of the curve.
Australian government bond futures rose, with the three-year bond contract up half a tick to 97.180.
The 10-year contract added 3 ticks to 96.275.
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