Aussie takes RBA hold in stride - Dollar sags as U.S. yields slip

Australian Stock Markets

The dollar sagged on Tuesday, knocked away from an eight-month highs versus the yen down as Treasury yields slipped on uncertainty over whether the Republicans can pass their tax bill in a timely manner. 

The Australian dollar held steady, showing little response to the Reserve Bank of Australia’s (RBA) well-anticipated decision to stand pat on monetary policy. The dollar index against a basket of six major currencies was a shade lower at 94.729 .DXY, slipping slightly from a 10-day peak of 95.077 reached on Monday. Against the yen, the dollar nudged up 0.15 percent to 113.870 yen JPY=, but still some distance from 114.735 struck the previous day, its highest since mid-March.

The euro was steady at $1.1613 EUR= following its descent to a 10-day trough of $1.1580 overnight.

The greenback had been solid after strong U.S. services and factory data issued before the weekend backed expectations for the Federal Reserve to raise interest rates next month and tighten further in 2018.

But the currency sagged as such expectations failed to lift Treasury yields. The benchmark 10-year yield US10YT=RR has slipped steadily toward 2.30 percent after peaking at a seven-month high of 2.47 percent in late October.

Doubts over whether U.S. Republicans could pass their tax plan have helped bring down long-term Treasury yields. The uncertainty dims hopes for faster economic growth, and there are worries about the scale of borrowing needed to finance the tax plan.

Australia’s central bank on Tuesday left its cash rate at a record low 1.5 percent, and signs indicated it would stay sidelined for months in the face of stubbornly low inflation and caution among debt-laden consumers.

The RBA eased twice last year but has since held steady as it balances the risk of fuelling further borrowing in the country’s red-hot property market against tepid inflation. The Australian dollar was little changed at $0.7692 AUD=D4 after gaining about 0.5 percent the previous day against the broadly weaker dollar. Other commodity currencies also performed well with oil prices climbing to 2-1/2-year highs this week amid political purges in Saudi Arabia.

The New Zealand dollar was nearly flat at $0.6938 NZD=D4 after gaining nearly 0.6 percent overnight to pull further away from a five-month low of $0.6818 reached at the end of October on political uncertainty.