Australian dollar dips as RBA stays dovish in face of strong data

SYDNEY, June 1 (Reuters) – The Australian dollar pared early gains on Tuesday after the country’s central bank stuck to its stubbornly dovish script on policy despite a salvo of upbeat economic data pointing to surprisingly strong growth.

The Aussie dollar was still up slightly on the day at $0.7746, having edged further away from last week’s trough of $0.7677. It faces stiff resistance at $0.7796 and $0.7813, which have held for the past three weeks.

The New Zealand dollar was 0.1% firmer at $0.7278, having found solid support around $0.7215/7230. It needs to clear the recent three-month peak of $0.7316 to extend the rally.

The Aussie pulled back after the Reserve Bank of Australia (RBA) concluded its monthly policy meeting by holding rates at 0.1%, as widely expected, while reiterating that no hike was likely until at least 2024.

The bank noted the economy had performed better than expected, but also cautioned it was vulnerable to coronavirus lockdowns such as the one currently gripping Victoria.

It was also notably less hawkish than the Reserve Bank of New Zealand (RBNZ), which last week projected it might raise rates by the third quarter of next year.

The RBA has said it would decide next month on whether to extend a bond-buying programme and roll over its three-year bond target.

Investors generally assume the bank will go with a third round of bond buying, perhaps of another A$100 billion ($77.62 billion), but will stick with the April 2024 bond for its target and not roll over to the November 2024 line.

Such a decision would be taken as the opening move in the long process of tapering stimulus, though the market is not pricing an actual hike until early to mid-2023. “The RBA still sounded dovish at today’s meeting, paving the way for another A$100bn extension of its bond purchase program next month,” said Marcel Thieliant, a senior economist at Capital Economics.

The case for some sort of tapering was enhanced by data, which showed growth was likely stronger than many expected in the first quarter, while super-low rates are fuelling a boom in house prices and borrowing.

Yields on Australian 10-year bonds stood at 1.65%, with the RBA’s dovish stance helping keep them below last month’s high of 1.767%. The spread over U.S. Treasuries was a slim 3 basis points and has been a drag for the Aussie.

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