SINGAPORE: The Australian dollar slipped on Tuesday after the Reserve Bank of Australia (RBA) held interest rates steady, while the US dollar regained some of the ground lost when data showed a slump in US manufacturing activity last month.
In a closely watched monetary policy decision, the RBA on Tuesday left its cash rate unchanged at 3.60%, as expected, with policymakers saying additional time was needed to “assess the impact of the increase in interest rates to date and the economic outlook”.
The Aussie fell in volatile trade following the decision and was last 0.32% lower at $0.6765. In the broader market, the dollar was reclaiming some lost ground during the Asian trading session after it tumbled on Monday when data pointed to a further slowing of the US economy.
The Institute for Supply Management (ISM) survey showed on Monday that manufacturing activity fell to the lowest in nearly three years in March as new orders continued to contract, with all subcomponents of its manufacturing PMI below the 50 threshold for the first time since 2009.
That sent the greenback broadly lower, tracking a slide in US Treasury yields, as investors pared expectations on how much longer interest rates would need to remain in restrictive territory.
The British pound and New Zealand dollar hit multi-week highs in early Asia trade on Tuesday but subsequently pulled back.
Sterling was last 0.05% lower at $1.2410, having touched its highest since late January at $1.2425.
The kiwi rose 0.2% to $0.6310, its highest since mid-February, and last stood at $0.6297. Against a basket of currencies, the US dollar index rose 0.17% to 102.20, reversing some of Monday’s more than 0.5% fall.
“The ISM manufacturing report for March was a dud,” said economists at Wells Fargo.
Australian dollar dips as slowing inflation argues for rate pause
“The closest thing we get to good news in (the) report is that the slowing in the factory sector is pushing prices lower and supply chains are continuing to heal, benefiting from the slack. “Beyond that, the rest of the themes were those that often precede an economic recession.”
The euro fell 0.11% to $1.0890, having gained more than 0.5% on Monday.
Against the Japanese yen, the dollar rose 0.28% to 132.83.
Futures pricing shows that markets expect the Federal Reserve to begin cutting rates as early as September through the end of the year, with rates seen just above 4.3% by December.
The two-year Treasury yield, which typically moves in step with interest rate expectations, was last at 3.9780%, having fallen nearly 10 basis points on Monday.
The sluggish US economic data overshadowed renewed inflation fears after the OPEC+ group jolted markets with plans to cut more production, sending oil benchmarks jumping 6% on Monday.
“Apart from the direct cost impact of the 6-7% jump in oil prices, economic headwinds are also posed by the prospects of stickier inflation prolonging the global tightening cycle (and) intensifying policy trade-offs,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank.
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