Australian dollar below 75 cents on dovish central .bank, NZ$ falters

SYDNEY: The Australian dollar held below the critical chart level of 75 US cents on Wednesday as traders wagered the country's central bank will keep monetary policy ultra easy for a long time to come, while its New Zealand peer stumbled from three-week highs.

The Australian dollar was last at $0.7494, below where it was before the Reserve Bank of Australia's (RBA) monthly policy meeting on Tuesday where it left key rates at 0.1% but narrowly tapered its bond buying programme.

The Aussie reached $0.7599 on Tuesday as the RBA said it would slow the pace of its bond buying programme come September to A$4 billion per week from A$5 billion.

But the currency failed to sustain above those levels.

"I had been saying they would do a modest taper, but this is so modest I'm blushing as I type this," said Tim Toohey, Yarra Capital Management's head of macro and strategy.

Economists at UBS said Governor Philip Lowe's post-meeting news conference was "max dovish" as he reiterated the need for interest rates to remain at current record low of 0.1% until actual inflation, not forecast, was "sustainably" within its target band.

"Indeed, Lowe went further in the dovish direction, specifying 'any increase in the cash rate will take place after bond purchases have ended'," said UBS chief economist George Tharenou.

The RBA has not provided a timeframe for when it would end its bond-buying programme, though it has repeatedly said it believes the conditions for rate rises - higher inflation and lower unemployment - are unlikely to be met before 2024.

Market pricing still suggests the risk of a 15 basis point rate hike by late next year led by a sharp and early economic rebound from a recession last year thanks to Australia's early success in curbing the coronavirus pandemic.

Yields on three-year government bonds hovered near 0.4% compared with the RBA's target of 0.1% for April-2024 bonds.

By contrast, New Zealand's central bank has sounded more hawkish, recently signalling an end to the pandemic era policy.

The New Zealand dollar was last at $0.7007, after going as high as $0.7105 on Tuesday.

Overall, currency market moves were shallow ahead of the minutes from the US Federal Reserve's pivotal June meeting where traders will look for clues as to when the Fed will begin to taper its pandemic-induced bond-buying spree.