Dollar slips on dovish RBA statement

The Aussie dollar eased after the Reserve Bank of Australia (RBA) held rates unchanged, but left the door wide open for further easing if necessary to support an economy battling a strong currency.

The Australian dollar fell half a cent to $US1.0395, showing a loss of 0.3 per cent on the day.

Interbank futures were barely changed as the market had only seen a one-in-five chance of an easing this month and were already positioned for in a near 50-50 chance of a cut in March. Swap markets also imply further easing to a record low of 2.75 per cent over time.

"It still looks like we've got some further easing to go," said Ben Jarman, an econmist at JPMorgan. "We've got them next going in May with a 25 basis point cut. We think it's going to take a little longer for the softness in the domestic data to give them enough evidence to go again."

With inflation restrained by the lofty currency and retail discounting, underlying inflation sits in the lower half of the RBA's long-term target band of 2 to 3 per cent, giving the bank plenty of ammunitions to support a slowing economy.

The RBA cut rates by 125 basis points last year in part to help revive activity in the housing market and boost manufacturing and retail, two sectors that were hard-hit by a strong Aussie dollar.


Earlier in the session, data showed Australia's trade deficit surprisingly narrowed to $427 million in December from $2.8 billion, thanks to an increase in iron ore shipments, Australia's top export earner.

The euro nursed hefty overnight losses, having run into profit-taking after recent hefty gains to last fetch $1.2965.

Against the yen, the Aussie retreated from four-year highs set on Monday with the dollar at 96.06 yen, having scaled 97.09 overnight.

Australian government bond futures bounced from nine-month lows with the three-year contract up 0.070 points to 97.130 and the 10-year contract 0.085 points higher at 96.520.