Australian, New Zealand dollars dip

The New Zealand dollar slipped on Tuesday, as traders wagered on a higher probability of a rate cut this week after a central bank survey showed the country's near-term inflation expectations eased in the fourth quarter.

A reduction to the official cash rate by the Reserve Bank of New Zealand (RBNZ) will add pressure on its Australian counterpart to ease too. The RBNZ last cut rates in August by a larger-than-expected 50 basis points.

The New Zealand dollar skidded 0.4% to $0.6335 after the RBNZ's quarterly survey of expectations showed business managers forecast annual inflation averaging 1.66% over the coming year, down from 1.71% in the previous survey in August.

The one-month overnight cash rate slipped to 0.795% after the survey, from 0.839% on Monday to now imply a 77% chance of a 25 basis point cut in November.

The kiwi has been trading in a tight band in the past few days. A break below $0.6323 will see it tumbling to $0.6241 and then to $0.6204.

The Australian dollar followed its New Zealand cousin lower. It was last down 0.2% at $0.6836, on course for its third straight session of losses.

New Zealand government bonds gained, sending yields about 2.5 basis points lower across the curve.

Australian government bond futures rose, with the three-year bond contract up 1 tick at 99.140. The 10-year contract added 1.5 ticks to 98.715.

Jarrod Kerr, chief economist at Kiwibank, said Tuesday's weak figures suggest August's outsized 50 basis point cut to the official cash rate (OCR) had "failed to turn the inflation expectations dial."