SYDNEY, May 4 (Reuters) - The Australian dollar lagged on Tuesday as the country’s central bank sharply upgraded forecasts for the local economy yet still predicted no tightening in its super-loose policy until at least 2024.
The Aussie faded 0.2% to $0.7742, well within the $0.7690 to $0.7815 range that has held for the past couple of weeks.
The New Zealand dollar dipped a touch to $0.7180, but found solid support at $0.7150. Resistance lies at $0.7215 and last week’s two-month top of $0.7286.
The Reserve Bank of Australia (RBA) wrapped up its May policy meeting by holding rates at 0.1% as widely expected, while reiterating a hike was unlikely until 2024.
The commitment to long-term stimulus came even as the bank turned more bullish on the outlook. Notably, the bank now saw unemployment falling to 4.5% by the end of next year, down a full percentage point from its previous forecast and closer to estimates of full employment.
The RBA said it would decide at its July meeting whether it would roll over its three-year bond target from the April 2024 line to the November 2024 note, and whether to expand its bond buying programme for a third time.
Analysts suspect that a decision not to roll over the bond target would be seen in the market as an early step toward tapering, which could put upward pressure on bond yields. “We reiterate our view that the Bank will announce an additional A$100 billion of bond purchases in July, though we expect it to maintain the April 2024 bond for its 3-year yield target rather than switch to the November bond,” said Marcel Thieliant, senior Australia economist at Capital Economics.
Market pricing suggests investors also assume the target will not be rolled over, with three-year yields down near the target of 0.1% while four-year bonds trade up at 0.46%.
Yields on 10-year bonds dipped to 1.68% on Tuesday, but have spent two months unable to break under 1.62%.
Underpinning the Aussie has been a bull run in prices for many of Australia’s resource exports, notably iron ore. The RBA’s index of commodity prices climbed 3.1% in April to be up almost 35% on a year ago, a windfall for mining profits and government tax receipts.
CBA’s head of international economics, Joseph Capurso, estimated the rise in commodities had lifted the Aussie’s fair value to $0.8400, within a range of $0.7800 to $0.8900.
(Editing by Simon Cameron-Moore)