The Australian dollar edged lower on Tuesday ahead of a meeting of its central bank which was expected to leave interest rates at a record low, while investors weighed the potential fallout from the spreading Omicron COVID-19 variant.
The Aussie was down 0.1% at $0.7044 by 0008 GMT, but holding steady after losing 1.5% last week. It was still some way off its Oct. 29 quarterly peak of $0.755.
The US dollar gained overnight against safe havens such as the Japanese yen and the Swiss franc, joining a bounce in risky assets after health experts, including top US infectious disease official Anthony Fauci, said the Omicron variant appears mild.
Markets were spooked last week after the variant's spread led to fresh lockdowns in Europe and fanned fears of a hit to global economic growth.
The local market expected little action from the Reserve Bank of Australia's (RBA) last monetary policy meeting this year, with rates seen unchanged at 0.1%. A Reuters poll last week showed economists expect a first rate hike in early 2023, though markets have fully priced in a hike as early as July next year.
Rising Omicron cases, chances of more aggressive central bank tightening in the United States, the RBA's likely dovish stance and broad greenback strength suggest further weakness lies ahead of the Aussie, strategists at Westpac said in a note.
"We have been arguing for weeks now that a move below the 0.7100 was coming. We would expect to see some support below 0.7000," they said.
Investors also await inflation data from the United States and China this week, with a readout from the world's largest economy of particular interest amid the Federal Reserve's hawkish signals about a speedier stimulus taper.
The New Zealand dollar inched 0.2% lower to $0.67435, after losing 1.2% last week. It has little in the way of support until $0.6700.
Three-year yields in Australian bonds were steady at 0.89% and 10-year yields were just off a two-month low at 1.605%.
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