SINGAPORE- The dollar was steady on Tuesday as traders took a breather from a risk rally, while the Aussie slid after the Reserve Bank of Australia raised rates, but left the door open on whether further hikes would be needed.
The RBA raised interest rates by 25 basis points on Tuesday, ending four months of steady policy, but a tweak in language regarding the outlook stoked expectations that the central bank was done with its rate hikes.
The Australian dollar fell 0.52 percent to $0.6474 after the decision and was last at $0.6460, but the currency remained close to the three-month peak of $0.6523 touched on Monday.
Commonwealth Bank of Australia’s currency strategist Carol Kong said the forward guidance was slightly watered down, which was perceived as dovish, resulting in the Aussie quickly giving back its gains after an initial knee-jerk rally.
The Aussie and the New Zealand dollar have rallied over the past few days after a benign US jobs report led markets to price in rate cuts by the middle of next year, lifting risk appetite. The kiwi was off 0.15 percent at $0.59545.
“With the RBA out of the way, the major determinants of AUD/USD will shift back to global. Expect focus to move back to Fed rhetoric and the resultant impacts on US Treasuries,” Kong said.
The rally in bonds and equities last week looks to be fading, with yields higher at the start of the week and the market focus switching to a flurry of US Fed officials due to speak this week.
Federal Reserve Bank of Minneapolis President Neel Kashkari said on Monday the US central bank likely has more work ahead of it to control inflation.
Fed Chairman Jerome Powell is due to speak on Wednesday and Thursday, where the focal point will be on whether he maintains the more dovish tone struck after the Fed’s policy meeting last week. -Reuters