The Aussie slipped as deep as $1.0671, a full cent away from a three-week high struck last week, as the central bank surprised some by toning down its recent hawkish rhetoric. In late trade it had steadied around $1.0692, off an early high of $1.0766.
Resistance is now seen around $1.0725, with support at $1.0640, then at $1.0580, its June 3 trough.
Interbank futures rallied as the market scaled back the chances of a hike in the next few months as well.
The July contract now imply only a 12 percent chance of a hike, compared to 36 percent before the statement. Even a shift by November was now only shown as a 50-50 chance.
The Australian bond yield curve steepened around 4 basis points. The three-year contract rallied 0.030 points to 95.12 while the 10-year contract lost 0.010 to 94.780.
"Right now, the Aussie fall reflects disappointment. It seems there isn't going to be a rate hike in the next few months, and a lot of people thought there might be," said Nick Socratous, head of global foreign exchange at HSBC Australia.
The Aussie is now set to test $1.0640 through the European session, he added.
Mitul Kotecha, strategist at Credit Agricole, sees potential for the local currency to be under pressure in the near term as the RBA failed to be more vocal about the potential for higher interest rates.
The Aussie dollar also lost steam against a firmer euro which leapt to a one-month high of A$1.4608, up 0.6 percent on the day. The European Central Bank will hold its policy meeting on Thursday, with Trichet expected to hint at a July interest rate hike.
The Aussie tumbled nearly one percent on the kiwi, at around NZ$1.3045, having hit a four-month low of NZ$1.2905 last week.
The setback for the Aussie gave a boost to its kiwi neighbour which gained 0.5 percent to $0.8187. Still, it is a fair way from last week's 26-year high of $0.8264. Support is seen from $0.8110, while resistance is gathered around $0.8195 ahead of the $0.8264 high.
"[The kiwi] is holding up purely because of the kiwi-Aussie buying," said Tim Kelleher, CBA's vice president of institutional banking and markets.
On Thursday, it is the turn of the Reserve Bank of New Zealand to review rates, with the bank widely expected to remain on hold. Analysts will scour the statement for any suggestion the bank will move to raise rates this year, ahead of current expectations of early 2012 for the first policy move.
"The kiwi is still in a range ahead of the RBNZ," Kelleher said, with the $0.82 resistance likely to cap the top while $0.8050 likely to form the support.
Data showed the New Zealand government finances were in slightly better shape than forecast in the 10 months to April, with the operating deficit at NZ$10.9 billion, and net debt level slightly lower than expected.
New Zealand government debt was mostly flat.
Copyright Reuters, 2011